PANews reported on April 9th that, according to Jinshi, Nick Timiraos, often referred to as the "Federal Reserve mouthpiece," wrote that the ceasefire between the US and Iran provides an opportunity to mitigate the serious threat currently posed to the global economy. However, for the Federal Reserve, this may simply be a change of scenery: persistent energy price volatility is enough to keep inflation high, but not enough to severely damage demand, thus prolonging the period of unchanged interest rates. The minutes of the Fed's March meeting emphasized that the war was not the primary reason for the Fed's reluctance to cut interest rates, but rather it complicated the Fed's already cautious stance. Even before the conflict, the path to rate cuts had narrowed. The labor market had stabilized, alleviating concerns about a recession, and progress toward the Fed's 2% inflation target had stalled. The Fed did not adjust interest rates at its March meeting, partly due to concerns about the risks of a protracted war. The risk that an escalation of the conflict could drag down economic growth and lead to a recession was the last and most compelling reason to resume rate cuts. Paradoxically, however, the end of the war may actually make it more difficult, rather than easier, for the Federal Reserve to implement easing policies in the short term. This is because the ceasefire agreement eliminates the worst-case economic scenario—severe price increases that could disrupt supply chains and destroy demand—which is arguably more important than eliminating the risk of new inflationary pressures.
Nick Timiraos emphasized that the Fed meeting minutes showed that "the vast majority" of officials believed that the pace of inflation easing might be slower than expected, mainly due to three intertwined concerns: the impact of tariffs on commodity prices may take longer to subside; the transmission effect of oil prices on core inflation; and years of inflation rates above the target level, making inflation expectations more vulnerable to a new round of shocks.
