Richmond Fed President: The impact of the Middle East conflict on monetary policy depends on its duration. Energy price fluctuations are one of the important factors.

Richmond Federal Reserve Bank President Barkin said that whether the military conflict between the United States and Iran will change the path of the Federal Reserve's monetary policy depends crucially on the duration of its impact on the U.S. economy. Barkin said in a TV interview on Thursday that changes in energy prices will be one of the important factors in evaluating policy. "Rising gasoline prices will obviously bring inflation pressure," he said. "From a textbook perspective of monetary policy, if it's a short-term shock, the central bank will usually 'see through' its impact, but if the shock is long-term, it cannot be ignored. I think this is the core issue that policymakers need to evaluate." The next Federal Reserve policy meeting will be held on March 17-18. Several officials have suggested previously that policymakers may hold the interest rate steady for a second time before inflation further drops. Data shows that the inflation index favored by the Federal Reserve rose 2.9% year-on-year in December last year, still significantly higher than its long-term target of 2%. Barkin pointed out that recent and upcoming data show that "inflation levels have been relatively high in the past few months," which means it is too early to conclude that the anti-inflation action has ended. "This will undoubtedly make people pause any conclusions that we have already ended the fight against inflation." Regarding employment, Federal Reserve officials generally believe that the labor market is becoming more stable, which has made policymakers more cautious about further easing policy after three consecutive rate cuts at the end of last year. Barkin said that the reason for the rate cuts last year was that decision-makers at the time believed that the downside risks facing the labor market were rising, while the risks of rising inflation were decreasing. However, he noted that recent data suggests that risk balance "is moving in another direction". The latest data released on Thursday showed that initial jobless claims in the United States were basically unchanged last week, but the number of continuing claims for unemployment benefits, considered an important indicator of the number of people receiving benefits, saw the largest increase so far this year. Nevertheless, Barkin said that recent employment data overall still "makes people feel reassured." When talking about the future leadership of the Federal Reserve, Barkin said he looks forward to working with Kevin Warsh. President Trump has nominated the former Federal Reserve Governor to succeed Jerome Powell as Federal Reserve Chairman after his term ends in May. It is widely expected that if appointed, Warsh will face pressure from the White House to cut interest rates, as Trump has previously stated his desire for the new chairman to push for a looser rate policy. Warsh has also publicly advocated in recent months that the Federal Reserve could create space for further rate cuts by reducing its balance sheet, currently around $6.6 trillion. In response, Barkin said on Thursday that he is open in principle to reducing the Federal Reserve's impact in financial markets. He said, "Intuitively, I agree that the Federal Reserve should have a smaller 'footprint' in financial markets." But this should be done while still being able to effectively implement monetary policy, stabilize rates, and avoid serious impacts on financial markets.