Federal Reserve Board governor Waller remains cautious about cutting interest rates and warns of long-term risks of conflict.

Federal Reserve Governor Waller stated that due to the energy shock caused by the Iran war, he is cautious about the need to cut interest rates in the short term, and warned that the conflict could have a lasting impact on inflation. Waller outlined two main scenarios in his speech. In the first scenario, if the Strait of Hormuz is reopened and trade flows return to normal, officials will be able to overlook the surge in energy prices and focus on the weak job market later this year. He said, "If this scenario occurs, I think there is a prospect that potential inflation will continue to fall back to the 2% target, which makes me cautious about cutting interest rates now and more inclined to support the labor market through rate cuts later this year when the outlook is more stable." However, he warned that the oil price and the overall market underestimate the risk of the conflict prolonging. "In terms of inflation, the longer the conflict lasts and the longer energy prices remain high, the greater the likelihood that these high input prices will filter into other prices, as businesses account for high energy costs in pricing." He said that if this situation occurs against the backdrop of a weak job market, it will limit policy response space. In this scenario, he will balance the risks between higher inflation and weaker labor markets. "If inflation risks outweigh labor market risks, this may mean keeping policy rates within the current target range."