Federal Reserve Governor Waller Adopts Cautious Stance on Rate Cut, Warns of Long-Term Inflation Risk

BlockBeats News, April 18th, Federal Reserve Governor Waller stated that he is cautious about the need for a rate cut in the short term due to the energy shock triggered by the Iran conflict, and warned that the conflict may have a sustained impact on inflation.

In his speech, Waller outlined two main scenarios. In the first scenario, if the Strait of Hormuz reopens and trade flows return to normal, officials will be able to overlook the surge in energy prices and shift their focus to a weak job market later in the year. He stated, "If this were to happen, I think there is a prospect that underlying inflation will continue to fall back to the 2% target, which would make me cautious about a rate cut at present and more inclined to support the labor market through a rate cut later in the year when the outlook is more stable."

However, he warned that the oil price and the overall market have underestimated the risk of prolonged conflict. "On the inflation front, the risk is that the longer the conflict lasts and the longer energy prices remain high, the greater the possibility that these high input prices will seep into other prices, as businesses take into account the high cost of energy in pricing."

He stated that if this situation occurs against the backdrop of a weak job market, it will limit policy space for response. In this case, he will weigh the risks between higher inflation and a weaker labor market, "If the inflation risk outweighs the labor market risk, this could mean keeping the policy rate within the current target range." (FX678)