Dovish Fed official turns cautious as energy shock lifts inflation risks

A senior official at the US Federal Reserve signalled a more cautious stance on interest rate cuts, as inflation remains persistent and geopolitical tensions add uncertainty to the economic outlook.

Stephen Miran, widely seen as one of the most dovish policymakers at the central bank, said on Thursday that he may scale back expectations for how quickly rates should decline.

Speaking at an economic forum in Washington, Miran said inflation dynamics had become “a little bit less favourable” even before the war involving Iran drove up global oil prices.

He noted that he had already reduced his projection for rate cuts by the end of 2026 from six to four during last month’s policy meeting.

“I might have three (rate cuts), I might have four, I haven't made up my mind,” Miran said, referring to his current outlook.

Inflation persistence complicates policy path

Miran’s revised stance reflects growing concern within the Federal Reserve about the persistence of inflation.

A key measure of US price increases is expected to reach 3.2% as of March, remaining well above the Fed’s 2% target.

Despite this, Miran said he still expects inflation to move closer to the target over the next year.

“I think we'll net out to being pretty close to target a year from now,” he said.

He added that he would still support a rate cut at the Federal Reserve’s upcoming April 28–29 meeting, citing concerns about a slowing labour market.

At the same time, Miran acknowledged that recent developments in energy markets have altered the balance of risks.

“The energy developments have changed the distribution of risks ... and they've increased the risks of higher inflation,” he said.

War adds uncertainty to Fed outlook

The comments underscore how the Middle East conflict has complicated an already uncertain monetary policy environment.

Miran’s views have often aligned with US President Donald Trump’s calls for aggressive rate cuts.

However, his latest remarks suggest even the most dovish voices within the Fed are reassessing their positions.

Trump has expressed confidence that his nominee for Federal Reserve chair, Kevin Warsh, would pursue lower interest rates.

Yet, support among policymakers for immediate and significant cuts remains limited.

Market expectations also reflect a more restrained outlook.

Investors are pricing in the possibility that the Fed’s benchmark rate—currently in the 3.50%–3.75% range—could remain unchanged until as late as mid-2027.

Rising energy costs feed inflation pressures

Separately, John Williams, President of the Federal Reserve Bank of New York, said the war is already contributing to higher inflation through rising energy prices.

“Developments in the Middle East are driving significant increases in energy prices, which are already lifting overall inflation,” Williams said in remarks at the Federal Home Loan Bank of New York 2026 Member Symposium.

He noted that the trajectory of inflation will depend on the duration of the conflict.

A swift resolution could ease pressures, but a prolonged war could trigger a broader supply shock.

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