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

ME News report, April 18 (UTC+8), Federal Reserve Board Member Waller said that due to an energy shock caused by the Iran conflict, he is cautious about whether a rate cut will be needed in the short term, and warned that the conflict could have a sustained impact on inflation. In his remarks, Waller outlined two main scenarios. In the first scenario, if the Strait of Hormuz reopens and trade flows return to normal, officials would be able to ignore the surge in energy prices and shift their focus later this year to a weakening labor market. He said, “I think there is a prospect that potential inflation will continue to fall back 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 broader market are underestimating the risk that the conflict will become prolonged. In terms of inflation, he said the risk is that the longer the conflict lasts and the longer energy prices remain elevated, the greater the likelihood that these high prices will feed into other prices, because businesses will factor in the high energy input costs when pricing. He said that if this happens against a backdrop of a weak labor market, it would limit the space for policy response. In this situation, he would weigh the risks between higher inflation and a weaker labor market, “If the inflation risk outweighs the labor market risk, this may mean keeping the policy rate within the current target range.” (Source: Jintou)