Federal Reserve Governor Waller: If the Middle East war ends quickly, rate cuts are still likely to continue

``` Federal Reserve Board member Waller said on Friday that the Middle East war could push up inflation in the short term, presenting a severe challenge to monetary policy makers. However, he also stated that if the situation can quickly de-escalate, there is still the possibility of another rate cut later this year. In the text of a speech at Auburn University, Waller said: "The longer energy prices stay high and the Hormuz Strait remains blocked, the greater the risk that inflation will spread across various goods and services. The impact on supply chains will gradually materialize, and real economic activity and employment will also begin to slow down." He pointed out that if high inflation and weak employment occur simultaneously, he would have to balance the risks between the two aspects of the Fed's dual mandate to determine the appropriate policy path. If the inflation risk outweighs the employment market risk, this could mean keeping the policy interest rate at its current target range. He added that if the conflict can be quickly resolved, he expects core inflation to continue approaching 2%, which makes him cautious about cutting rates, but he is more inclined to support the job market with rate cuts later this year once the economic outlook stabilizes. Waller noted there is considerable uncertainty in the current situation, and it is increasingly difficult for the Fed to ignore what are usually temporary economic shocks. In the face of continuous shocks, policymakers need to be more vigilant, because repeated shocks could keep inflation at a high level for an extended period. As for the near-term outlook, Waller expects the overall Personal Consumption Expenditures (PCE) price index for March to reach 3.5%, far above the Fed's 2% target. He also said changes in the job market mean the number of new jobs required to keep the unemployment rate stable is now close to zero, so a decline in employment in a single month does not necessarily signal an economic recession. Waller's remarks may be the last public statement on monetary policy by a Fed official before the Federal Open Market Committee (FOMC) enters its media blackout ahead of the April 28–29 meeting. It is widely expected that the meeting will keep the current target range of interest rates at 3.5% to 3.75%, while continuing to assess the impact of the Middle East war on the economy. Due to the rapidly changing situation of the war launched by President Trump and Israel against Iran, Fed officials have remained tight-lipped about the future direction of interest rates. The conflict has caused energy prices to surge, pushing up the already high overall inflation, and also increasing the risk that core inflation (also above the Fed's 2% target) could climb further. New York Fed President Williams said on Thursday that he expects overall inflation to be clearly above 3% in the coming months. With so much uncertainty, now is not the time to provide strong forward guidance. Waller also made the above remarks as the war situation was rapidly evolving. If the latest diplomatic efforts can continue progressing, the economic outlook is expected to improve. On Friday, Iran announced that the Strait of Hormuz was fully open for passage during the ongoing ceasefire, although Trump said the US would continue to block Iranian ports. Oil prices plunged, stocks surged, and investors raised the probability expectation for Fed rate cuts this year. Risk warning and disclaimer The market carries risks, and investing must be done with caution. This article does not constitute personal investment advice, nor does it consider individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investment is at your own risk. ```