The Middle East conflict intensifies uncertainty, New York Fed President says interest rates are at "appropriate level," Director Milan advocates for further interest rate cuts.

The Federal Reserve's internal stance on policy paths tends to be cautious, overall leaning towards "wait and see," but at the same time showing some divergence. On Monday, New York Federal Reserve President Williams stated that current monetary policy is in a "good position" to balance inflation and employment. He pointed out that the Middle East conflict could bring typical supply shocks, on one hand, pushing inflation higher through the rise in energy and commodity prices, and on the other hand, putting pressure on economic growth, a situation that "has already begun to emerge." Williams further emphasized that with a significant increase in energy prices, overall inflation levels may rise in the coming months, but if the conflict ends and oil prices fall, some pressure may ease within the year. He expects the U.S. economy to grow by about 2.5% this year, with inflation possibly rising to 2.75%, then falling back to around the 2% target next year, while the unemployment rate may increase. On the same day, Federal Reserve Chairman Powell also expressed a similar cautious attitude. He pointed out that the situation in the Middle East will have a direct impact on oil prices, and that current policy is "suitable for observation," waiting for further clarity on the situation. He also admitted that the Fed is facing a "dilemma," with risks of a downturn in the labor market on one hand, requiring the maintenance of low interest rates, but at the same time, upward pressure on inflation means that overly loose policy is not advisable. In terms of policy stance, the Federal Reserve's internal views are not completely aligned. Board member Milan continues to advocate for a rate cut. He stated that short-term energy price shocks should be ignored unless they evolve into more persistent inflation pressures, such as a wage-price spiral. Currently, inflation expectations remain stable, and while the rise in energy prices has pushed gasoline prices up by more than $1 per gallon, it has not changed long-term inflation expectations. In terms of policy background, at this month's monetary policy meeting, the Federal Reserve kept the federal funds rate unchanged in the range of 3.5% to 3.75%, and forecasted a possible rate cut in 2026. The market had previously bet on an interest rate hike due to the surge in oil prices, but has recently shifted back to expectations of a rate cut. Analysts point out that the Middle East conflict has caused disruptions in the transportation of oil through the Strait of Hormuz, making energy prices the biggest external variable in the current economy. High oil prices could both boost inflation and squeeze consumer spending, dragging down economic growth, making the Fed's balancing act between "controlling inflation" and "maintaining growth" more complex.