WASHINGTON (AFP)
US Federal Reserve Governor Christopher Waller on Friday said he was concerned about the impact of the US-Israel war on Iran on inflation due to the prolonged closure of the Strait of Hormuz.
Waller, who has since last year backed interest rate cuts over labor market concerns, said he changed his mind in the last two weeks on the pace of easing due to inflation risks.
"Since that time the Strait of Hormuz was closed, this is looking like it's going to be a much more protracted conflict, and oil prices are going to stay high for a longer time," he told US broadcaster CNBC on Friday.
"So that suggested inflation was more of a concern than I was putting it."
Waller backed the Fed's decision earlier this week to hold rates steady. The central bank also raised its inflation outlook for 2026.
The US-Israel war on Iran, launched on February 28, has engulfed the Middle East in conflict, with Tehran blocking the key Strait of Hormuz.
Roughly a fifth of the world's oil and natural gas passes through the waterway, and the conflict has sent oil prices spiking and roiled supply chains for key commodities, including fertilizers.
Central banks tend to ignore short-term price shocks when setting interest rates, but Waller said that sustained high oil prices would begin to have knock-on inflationary effects.
"If it's a very high level, and it stays high for months on end, then at some point it bleeds through, because oil is an input into so many products," he said.
Waller said there was a high degree of uncertainty around the duration of the conflict, and that meant the Fed would "wait and see."
On Wednesday, Fed Chair Jerome Powell had similar comments when he announced the interest rate decision.
US consumers have been dealing with years of higher-than-expected inflation post-pandemic, and last year the labor market began to show signs of weakness.
Analysts say a relatively steady unemployment rate has been masking churn beneath the surface -- with sluggish labor demand covered by a drop in workers due to Trump's immigration crackdown.
Waller has been one of the policymakers expressing alarm at the low jobs growth, advocating for rate cuts to spur economic activity.
On Friday, however, Waller appeared to change his view, saying he saw inflation as a more immediate risk, unless future jobs data showed increased weakness.
"It doesn't mean that I'm going to stay put for the rest of the year. I just want to wait and see where this goes," he said.
He added that while he saw inflation as an issue, he was not currently in favor of rate hikes, which some policymakers may advocate for to cool the economy in order to combat inflation.
Waller said that in a situation where the Fed's mandates on inflation and unemployment were in competition, he would favor addressing unemployment.