Concerns are growing among Federal Reserve officials that the conflict in the Middle East, particularly the closure of the Strait of Hormuz, could prolong inflationary pressures. Christopher Waller, a member of the Federal Reserve’s Board of Governors, expressed his anxieties on Friday, signaling a shift in his thinking regarding the pace of potential interest rate cuts.
“Since the closure of the Strait of Hormuz, it appears the conflict will be prolonged, and oil prices will remain elevated for longer,” Waller told CNBC on Friday. This assessment comes as the U.S. And Israel have engaged in strikes against Iran following attacks by Tehran in the Gulf region, leading to disruptions in vital shipping lanes.
Waller added, “This suggests that inflation is a greater concern than I previously thought.” The Strait of Hormuz is a critical waterway for global energy supplies, with roughly 20% of the world’s oil and natural gas passing through it. The ongoing disruptions have already caused a sharp rise in oil prices and are impacting supply chains for essential commodities, including fertilizers.
Earlier this week, Waller supported the Federal Reserve’s decision to hold interest rates steady. The central bank also revised its inflation forecasts for 2026 upwards. Although typically central banks tend to overlook short-term price shocks when setting interest rates, Waller indicated that sustained high oil prices could have cascading inflationary effects.
“If prices were to remain at particularly high levels, and stay that way for months on end, it would eventually show up, because oil is a key component in so many products,” he explained. The Fed official acknowledged significant uncertainty surrounding the duration of the conflict, prompting a cautious approach to monetary policy.
Federal Reserve Chair Jerome Powell echoed similar sentiments on Wednesday following the interest rate decision. U.S. Consumers have been grappling with higher-than-expected inflation for several years, and recent labor market data has shown signs of weakening. Analysts note that a relatively stable unemployment rate may mask underlying fluctuations in the labor market, as tighter immigration policies under the Trump administration offset weaker demand for workers.
Waller had previously been among those voicing concerns about slowing job growth, advocating for interest rate cuts to stimulate economic activity. Although, he appeared to reverse course on Friday, stating that he now views inflation as a more pressing risk, unless future employment data demonstrates further weakness. “That doesn’t mean I’m going to stay on this course for the rest of the year. I just want to wait and see where things go,” he said.
Despite recognizing the inflation problem, Waller does not currently support raising interest rates, a move some policymakers might consider to cool the economy and combat rising prices. He indicated that, should the Fed’s inflation and unemployment goals conflict, he would prioritize addressing unemployment.
