Federal Reserve officials warned of inflation risks and said that the central bank may remain on hold for an extended period of time.

Recently, Federal Reserve officials have made frequent statements emphasizing that high oil prices and continuous supply shocks could keep inflation elevated, thereby limiting the room for monetary policy to shift towards easing. On Wednesday, St. Louis Fed President Musallam stated that the rise in oil prices is gradually transmitting to core inflation, and it is expected that core inflation this year could approach 3%, significantly higher than the policy target of 2%, with even further upside risks. He pointed out that against this background, the Fed may need to maintain interest rates in the range of 3.5% to 3.75% for a longer period to observe changes in economic data. This assessment is consistent with the recent expectations in the market. Initially, the market was generally betting on rate cuts this year, but as tensions escalate in the Middle East and oil prices soar, the policy path has changed, and investors are increasingly inclined to believe that the Fed will enter a "long period of observation." Brent crude oil prices are currently around $95 per barrel, significantly higher than before the conflict. The increase in energy costs not only pushes up gasoline prices, but also gradually transmits to the transportation, tourism, and food sectors. Musallam pointed out that this round of oil price shocks, combined with tariff hikes and tighter immigration policies, constitutes the third significant supply shock in the past year. Although housing inflation has eased slightly, and some pressure on commodity prices has eased, service sector inflation remains sticky, hindering the overall decline in prices. Similar to Musallam, Cleveland Fed President Hamek emphasizes the importance of inflation risks. She stated that although employment growth has weakened in the past year, the overall labor market is still "relatively balanced," and inflation persistently above the target is the bigger issue. "We have not achieved the 2% inflation target for five consecutive years," Hamek pointed out. "The impact on ordinary families is real and enduring." She gave the example of daily expenses, saying that the cost of the same basket of goods has risen from $100 to $120, significantly eroding residents' purchasing power. She emphasized that in the current environment, the Fed's baseline scenario is to keep interest rates unchanged for "quite some time," but she did not rule out the possibility of raising or cutting rates when necessary. It is worth noting that despite some market participants believing that artificial intelligence may bring deflationary effects, Hamek is cautious about this. She stated that AI applications in enterprises are still mainly concentrated in large companies, while small and medium-sized enterprises are still in the exploratory stage, making it difficult to assess their impact on the overall economy and inflation. Hamek also emphasized the importance of inflation expectations, pointing out that once expectations rise, it could trigger wage increases and a spiral of rising prices. Currently, medium to long-term inflation expectations remain stable, providing the Fed with the space to maintain patience. At the same time, she also mentioned the recent controversy surrounding the independence of the Fed, emphasizing the importance of policy independence in achieving the dual objectives of inflation and employment.