Federal Reserve Board governor Waller said he is cautious about a short-term rate cut, as the Iran conflict has caused an energy shock, and he warned that the conflict could keep inflation persistently above target. He outlined two scenarios: if the Strait of Hormuz reopens and energy and trade recover, inflation would fall back to 2%, and he would likely cut rates later this year to support the labor market; if oil prices remain at elevated levels and the job market stays weak, policy would be constrained, requiring a trade-off between higher inflation and a weaker labor market—if inflation risks outweigh labor-market risks, or if inflation remains the greater risk, then rates would be kept at their current level.

MeNews

2026-05-25 04:48:33

Abstract generation in progress

ME News Report, April 18 (UTC+8), Federal Reserve Board Member Waller stated that due to the energy shock triggered by the Iran war, he remains cautious about whether a rate cut is needed in the short term and warned that the conflict could have a lasting impact on inflation. Waller outlined two main scenarios in his speech. In the first scenario, if the Strait of Hormuz reopens and trade flows return to normal, officials will be able to ignore the surge in energy prices and shift their focus later this year to a weakening labor market. He said, "If this occurs, I see a prospect where inflation continues to fall toward the 2% target, which would make me cautious about current rate cuts and more inclined to support the labor market through rate cuts later this year when the outlook is more stable." However, he warned that oil prices and the overall market are underestimating the risk of prolonged conflict. "In terms of inflation, the risk is that the longer the conflict persists and energy prices stay high, the greater the likelihood that these high prices will permeate other prices, as businesses will incorporate the high energy input costs into their pricing." He stated that if this happens against a backdrop of a weak labor market, it would limit policy response space. In such a scenario, he would weigh the risks of higher inflation against a weaker labor market, "If the inflation risk exceeds the labor market risk, it could mean maintaining the policy rate within the current target range." (Source: Jintou)

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TheTreeInTheCenterOfMistValley

· 4h ago

I'd rather have high interest rates than relive the stagflation of the 1970s.

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ReviewMonsterDoesn'tSleep

· 4h ago

If the strait reopens quickly, there will still be a chance in the second half of the year

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YieldYuki

· 4h ago

The market is once again re-pricing expectations of interest rate cuts.

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StainedGlassSolarArray

· 4h ago

Waller's statement is quite straightforward; both sides are stuck.

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GoldfishUnderTheIce

· 4h ago

Will interest rates be lowered later this year—how much later is "later"?

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GateUser-af0ea0c9

· 4h ago

High inflation and weak employment—this trade-off just sounds headache-inducing.

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GateUser-9187acf1

· 4h ago

Waller is probably hawkish; this statement is not surprising.

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AirdropCheatSheet

· 4h ago

There are really no good options when oil prices and employment are both taking a hit.

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GateUser-9d67589f

· 4h ago

If the conflict escalates, the policy space will indeed be limited.

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Semi-MeltedIceCream

· 4h ago

The 2% inflation target now seems like an unreachable pie.

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Federal Reserve Board member Waller is cautious about interest rate cuts, warning of long-term conflict risks

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