Federal Reserve Bank of San Francisco President Daly (2027 FOMC voter) at the Fisher Center for Real Estate and Urban Economics Spring Policy Advisory Committee meeting at UC Berkeley: The federal funds rate is currently slightly restrictive, just above the 3% neutral level.
Before the oil price shock, she felt one to two interest-rate cuts would be needed in 2026.
The business community is optimistic that the Iran conflict will be short-lived and that oil prices will not remain high, but she is currently in a wait-and-see mode.
Rates can be held steady; if inflation gets out of control, they may need to rise; if the conflict ends quickly, cuts could occur.
The outlook for interest rates depends on how long the conflict lasts and whether high energy prices will more broadly permeate inflation.
Remaining on hold with data and observing how the conflict resolves is an ideal state.