Inflation is not yet stable and facing geopolitical risks. Yellen: The Federal Reserve will be more cautious in cutting interest rates, even choosing to "stand pat".

Former US Treasury Secretary and former Federal Reserve Chair Janet Yellen stated that the duration of the impact of the Iran conflict on the oil market will determine the extent of its impact on US economic growth and inflationary pressures, making decisions for the Federal Reserve more complex. "I think that the recent situation in Iran will make the Federal Reserve more inclined to remain on hold, and compared to before the events, their attitude towards rate cuts will be more cautious," Yellen said in a video statement at a conference held in Long Beach, California on Monday. Yellen pointed out that the current US inflation rate is about 1 percentage point higher than the Fed's 2% target, and the Trump administration's tariff policy contributes about 0.5 percentage points to the current 3% inflation rate. Before the sudden change in the Iran situation, the Fed had believed that the softness in the labor market was easing, and policymakers were waiting for inflation to fall. "But with the sudden change in the Iran situation, oil prices have surged significantly - the future development of the situation in the coming days is still unknown," Yellen said at the S&P Global TPM26 Shipping Conference. She also stated that if the closure of the Strait of Hormuz (the main oil shipping route in the region) lasts for more than a few days, oil prices may remain high or continue to rise. Managing inflation expectations Yellen said that since the Fed has not yet brought inflation back to the 2% target, "they must be vigilant against market participants' doubts that the Fed actually brought the inflation rate down to 3% but may not really intend to push it down to 2%." "If this mindset develops, the Fed will worry about a permanent rise in inflation, and policy trade-offs will become more difficult, which is also why they are more inclined to remain on hold," Yellen said. In addition to major risks such as the Iran conflict, Yellen concluded, "Overall, the US economy is currently quite healthy, and I am optimistic about the economic outlook." Yellen also criticized multiple actions taken by the Trump administration against the Federal Reserve. She stated that Trump's attempt to dismiss Fed Governor Lisa Cook is "inexplicable" and that the Supreme Court has not yet ruled on it, but Trump is likely to lose the case. Serious blow to Fed independence Regarding the Department of Justice investigation into Powell's comments last year about overspending on renovations at the Fed building, Yellen said that Trump's actions are unprecedented and essentially weaponize the Department of Justice against the Fed Chair. She believes that if criminal charges are brought, "it would seriously threaten the independence of the Fed." "I think everyone understands that this would have a serious impact on economic policy and could significantly raise inflation," Yellen said. From a broader perspective, Yellen stated that the many disruptive actions taken by the Trump administration in the global economy are leading to higher risk premiums being demanded for US Treasury bonds. She also mentioned that concerns about US economic policies have increased, putting "downward pressure" on the US dollar, as the market believes that higher risks "need to be compensated for."