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 stated that due to the energy shock triggered by the Iran conflict, he remains cautious about whether a rate cut is needed in the short term and warned that the conflict could have a sustained 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 the conflict becoming prolonged. “In terms of inflation, the risk is that the longer the conflict persists and energy prices stay high, the greater the likelihood that these elevated prices will permeate into other prices, as businesses will incorporate high energy 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 may mean maintaining the policy rate within the current target range.” (Source: Jintou)