Federal Reserve Powell: Middle East conflict adds uncertainty, "do nothing" is the best solution for now.

Federal Reserve Governor Michael Bahr said that policymakers are fully capable of maintaining interest rates unchanged, but factors such as the Middle East conflict make it complicated for the Fed to push inflation back to its 2% target. Bahr emphasized that the impact of tariffs on inflation may persist beyond this year, while also pointing out that non-housing service inflation and core inflation excluding the volatile food and energy categories remain high. Speaking at the Brookings Institution in Washington on Thursday, Bahr said, "Given the considerable uncertainty about the potential impact of developments in the Middle East on the U.S. economy, as well as other factors I mentioned, it is reasonable to spend some time evaluating the situation. Our current policy stance puts us in a favorable position to assess data, evolving forecasts, and risk balances while maintaining stability." The Fed last week kept its benchmark policy rate unchanged for the second time in a row, a move Bahr supported. Policymakers noted increased uncertainty about the economic outlook, partly due to the U.S.-Iran war leading to a sharp rise in oil prices. Bahr stated that if the conflict ends quickly, the impact on inflation and economic activity may be limited. "But if the conflict persists, the surge in energy prices and other commodities may have a broader impact on prices and economic activity," he said. "We have already experienced five years of high inflation, short-term inflation expectations are rising again, so I am particularly concerned that another price shock could push up long-term inflation expectations." Central bank officials believe that controlling public expectations of future inflation is crucial to restraining price pressures. Meanwhile, he noted that a low and stable unemployment rate reflects a balance between job creation and a decrease in the workforce. "However, low levels of hiring may make the labor market vulnerable to shocks, so it is necessary to remain vigilant about the labor market conditions," he said. Regulatory changes Bahr also criticized a series of actions pushed by Federal Reserve Vice Chair Michelle Bowman aimed at reducing bank regulations, including plans to relax capital requirements for large banks. Bahr, who previously held the position before Bowman, said the combined effects of these changes "will weaken the resilience of the banking system." "The safety and soundness of the banking system are built on trust, and I am concerned that we are eroding that trust," he said.