Federal Reserve Governor Michael Barr stated that policymakers are well-positioned to keep interest rates stable, as conflicts in the Middle East and other factors complicate efforts to bring inflation down to the 2% target.
Barr emphasized that the impact of tariffs on inflation could extend beyond this year. He also noted that both non-housing services inflation and core inflation, which excludes volatile food and energy categories, remain elevated.
"Given that developments in the Middle East may introduce considerable uncertainty into our economy, along with other factors I've mentioned, it is prudent to take time to assess the situation," Barr said during a speech at the Brookings Institution in Washington on Thursday. "Our current policy stance places us in a strong position to maintain policy unchanged while we evaluate incoming data, the economic outlook, and the balance of risks."
The Federal Reserve held its benchmark interest rate steady for the second consecutive time last week, a move Barr supported. Policymakers highlighted increased uncertainty in the economic outlook, partly due to rising oil prices following military actions involving the U.S. and Israel against Iran.
Barr noted that if the conflict ends quickly, its impact on inflation and economic activity may be limited.
"However, if the situation persists for an extended period, surging energy prices and other commodity costs could have broader effects on prices and economic activity," he said.
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