The Iran war disrupts the outlook, the Federal Reserve faces pressure on two fronts, and a hawkish-dove battle is imminent.

Federal Reserve officials will meet this week, their policy outlook already disrupted by the backdrop of the Iran war, which has brought one-fifth of the world's oil supply to a standstill. Officials will discuss whether the conflict is more likely to damage economic growth and trigger more persistent inflation, or create a complex situation of both economic slowdown and rising prices. Given that supply shocks during the pandemic led the Fed to miss its 2% inflation target for five consecutive years, policymakers are more likely to take a cautious approach this week, and may even signal a hawkish stance outright. Current inflation is still about one percentage point above target and is poised to rise further, especially given the continued high oil prices, which have surged nearly 50% in two weeks. Officials must also weigh whether this emerging economic shock, expected to not only lead to higher prices but also tighten financial conditions, depress asset prices, and increase uncertainty, could trigger a breakdown in economic resilience. Markets expect the Fed to keep interest rates unchanged at this week's policy meeting. Data since the last meeting shows little change in the basic outlook, and the Federal Reserve is in a leadership transition phase—Trump's nominee, Kevin Warsh, is expected to be confirmed by the Senate and succeed current Chairman Powell as head of the Fed after mid-May. Nevertheless, Fed officials will still submit new economic projections, striving to determine whether future developments will require maintaining a tight monetary policy to firmly combat inflation or cutting interest rates to offset the impact of an economic slowdown. (Jinshi)