Federal Reserve Governor Waller said that rising oil prices are exacerbating inflation risks, and if employment weakens, he still supports cutting interest rates within the year.

Federal Reserve Board Governor Waller said on Friday that despite rising oil prices may exacerbate inflationary pressures, there is still a possibility of a rate cut later this year if the labor market remains weak. Waller pointed out in an interview with the media that it is currently "necessary to be cautious," but this does not mean that the Fed will stand still throughout the year. He emphasized that the Fed needs to observe the actual impact of oil price shocks on the economy, and if the situation remains relatively stable and the labor market continues to weaken, he will once again support a policy rate cut later this year. This week, the Federal Reserve kept interest rates unchanged for the second consecutive time while still maintaining expectations of a rate cut later in the year, but explicitly mentioned the increased uncertainty brought about by the situation in the Middle East. Waller revealed that if it were not for the new risks brought by the Iran conflict, he would have been inclined to vote against the decision to remain unchanged, indicating that geopolitical factors have begun to significantly influence policy decisions. He further pointed out that the transmission effect of rising oil prices on inflation is fundamentally different from the impact of general tariff shocks. As a key intermediate input, the rise in energy prices will eventually seep into a wider range of goods and services prices, thereby pushing up overall inflation levels. As the conflict prolongs, the risk of high oil prices remaining and the possibility of sustained inflationary pressures increase. The latest economic forecasts also reflect this trend. Federal Reserve officials have raised their inflation expectations for 2026 from 2.4% to 2.7%, and core inflation expectations have also been raised to 2.7%, indicating a weakening confidence in the path of inflation decline. At the same time, uncertainty in the labor market is also on the rise. The policy statement has removed the previous statement about the labor market "trending towards stability," and instead now states that the unemployment rate has "changed little in the recent period." Waller said that even though some research suggests that the "break-even point" of the labor market is close to zero growth, this assessment is still difficult to fully accept in reality, reflecting the complexity of current evaluations of the labor market situation. There are still differences within the Federal Reserve on the future policy path. Vice Chair of Supervision Bowman stated earlier in the day that she still expects three rate cuts of 25 basis points each in 2026, but she also acknowledged that the impact of the Iran conflict is still difficult to assess.