Federal Reserve official says Iran war limits central banks ability to provide rate guidance

Federal Reserve Bank of Minneapolis President Neel Kashkari said Sunday that the longer the Iran war goes on, the greater the risks of higher inflation and economic damage, all of which limit how much guidance the central bank should provide on rate policy right now.In an appearance on CBS’s “Face the Nation” television program, Kashkari said he was “very focused” on the Iran war and its impact on inflation and economic demand amid the ongoing closure of the Strait of Hormuz, a chokepoint for 20% of global oil and gas supplies.The war, which began when President Trump and Israel launched airstrikes on Iran on Feb., has led to a massive surge in energy prices around the globe and worsened a bad inflation environment in the US.Given the risks and the uncertainty around all aspects of the war, Kashkari said the Fed may even have to raise rates.“I don’t feel comfortable signaling that a rate cut is in the cards.You know, we might be in worse scenarios, we might have to go the other direction,” he said.Kashkari was part of an unusually large dissenting wave at themost recent Federal Open Market Committee meeting, voting against language the institution used in its monetary policy statement.On Wednesday, the Fed held its interest rate target range steady at between 3.5% and 3.75% and retained language that indicated officials still collectively viewed the central bank’s next move as a rate cut.Kashkari was joined in a dissent against that guidance by the leaders of the Cleveland and Dallas regional Fed banks.

One other Fed official, Governor Stephen Miran, dissented in favor of a rate cut.The three regional Fed dissenters supported holding rates steady and in following comments, they said interest rates may need to go up or down depending on how the war affects the economy.The Fed traditionally looks through things like energy price shocks as they usually abate, but some officials have noted the current troubles come on top of ye...