A top official at the Federal Reserve said the U.S.-Israeli war with Iran called for the central bank to proceed cautiously with rate cuts, even as he left open the possibility of relief later this year.
Christopher J. Waller, a Fed governor, warned on Friday that supply disruptions related to the Middle East conflict could stoke inflation, which he had expected to decline this year as the impact of President Trump’s tariffs faded.
In the roughly three weeks since the United States and Israel first struck Iran, energy prices have surged. On Friday, Brent crude, the international benchmark for oil, traded around $107 a barrel, roughly 50 percent higher than at the start of the month.
One concern is whether higher energy prices, which have already pushed up the price of gasoline, jet fuel and shipping, might bleed into other sectors and push up measures of underlying inflation that the Fed closely monitors.
“Caution is warranted,” Mr. Waller said in an interview on CNBC. “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.”
Mr. Waller spoke just days after the Fed decided to hold rates steady at a range of 3.5 percent to 3.75 percent for a second-straight meeting. Mr. Waller, who voted for the central bank to cut rates by a quarter of a percentage point in January, said he had been prepared to dissent again this month following a lackluster jobs report in February that showed employers slashing 92,000 jobs.
The conflict changed his thinking.
“Since that time, the Strait of Hormuz was closed,” he said. “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. So that suggested inflation was more of a concern.”
Stephen I. Miran, who was appointed to the Fed last year by Mr. Trump, was the only official vote against March’s hold, marking his fifth-straight dissent.
Even before the conflict, there were signs that progress on getting inflation down to the Fed’s 2 percent target had stalled. As of January, the Fed’s preferred inflation gauge — the core Personal Consumption Expenditures index — stood at 3.1 percent, up from a low of 2.6 percent last April. The labor market has started to look more fragile even as the unemployment rate has stayed relatively stable around 4.4 percent.
If the labor market continued to weaken and the economic fallout from the conflict was contained, Mr. Waller said he would support rate cuts later this year.
According to new projections the Fed released this week, most officials still expect the central bank to lower rates by a quarter of a percentage point by year-end, although there is a significant dispersion of views. Seven policymakers projected no policy adjustments at all, while five expected two or more.
At a news conference after Wednesday’s meeting, Jerome H. Powell, the Fed chair, sought to downplay the significance of officials’ new forecasts, stressing that there were simply too many unknowns regarding the war to have a good sense of how the outlook had evolved.
“The thing I really want to emphasize is that nobody knows,” he said, even as he hinted that the path to cuts this year looked exceedingly narrow. Mr. Powell made clear that further reductions were conditional on the Fed seeing some improvement in inflation.
“If we don’t see that progress, then you won’t see the rate cut,” he said.
In an interview on Fox Business on Friday, Michelle W. Bowman, who Mr. Trump promoted to vice chair for supervision last year, said she projected three quarter-point cuts by the end of the year given her concerns about the labor market. She added that the economic impact of the war was highly uncertain.
“I think it’s too early to tell what the longer-term imprint will be on U.S. economic activity,” Ms. Bowman said. “And how we should think about that in terms of our longer-term economic forecast, and how we should think about that in terms of our FOMC meetings and any rate changes that we might make as a result of economic evolution coming forward.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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