Federal Reserve Board Member Waller: Iran War Unlikely to Trigger Persistent Inflation

On Friday, March 6, local time, Federal Reserve Board member Waller stated that he does not believe the Iran war will have a lasting impact on inflation.

During a media interview on Friday, Waller pointed out that as gasoline prices rise, consumers may experience a “price shock” at the pump, but policymakers typically ignore this one-time price increase.

Before President Trump launched an indefinite airstrike against Iran, oil prices were about $72 per barrel; they have now surged to $90 per barrel. Meanwhile, U.S. gasoline prices have also increased by about 10%, rising from just below $3 per gallon to $3.32.

Gasoline prices have historically had a significant impact on American consumer confidence. However, Waller said he expects this price shock to be relatively short-lived and not to cause multiple rounds of oil price shocks like in the 1970s, which led to long-term price stagnation.

“From the perspective of our future policy-making, this is unlikely to lead to persistent inflation,” Waller said. “That’s also why we pay less attention to energy prices. When we look at core inflation, it’s a more reliable predictor of future inflation.”

He added, “It’s a bit strange to think that just because of this, the Fed might change interest rate policies in six months.”

Currently, the Trump administration has not set a timetable for this conflict. Shipping through the key Strait of Hormuz has nearly come to a halt, and some Fed officials warn that if Iran’s retaliation escalates or the conflict prolongs, oil prices could rise further.

Market expectations for further Fed rate cuts have also become more cautious. It is widely expected that the Fed will hold steady at its March 17-18 meeting for the second consecutive time, maintaining the federal funds rate target range at 3.5%–3.75%.

Waller said the main risk facing the Fed is that if the oil price shock “becomes more prolonged… it will start to transmit to other parts of the economy.”

Qatar Energy Minister Saad Al-Kaabi warned on Friday that the Middle East conflict could “drag down the global economy,” and energy-producing countries in the Gulf region may need to declare force majeure and shut down some production in the coming days, which could push oil prices up to $150 per barrel.

The International Monetary Fund (IMF) Chief Kristalina Georgieva also warned on Friday that a 10% increase in international oil prices sustained for a year would boost global inflation by 40 basis points and slow economic growth by 0.1 to 0.2 percentage points.

(Source: Cailian Press)