Federal Reserve Governor Christopher J. Waller urged caution on interest rate cuts as the U.S.-Israeli conflict with Iran drives up energy prices and stokes inflation concerns. Waller, speaking on CNBC, said supply disruptions from the Middle East could keep inflation elevated even as he left open the possibility of rate relief later this year if the labor market weakens.

Since the conflict began, Brent crude has surged to around $107 a barrel, roughly 50 percent higher than at the start of March. Waller noted that the closure of the Strait of Hormuz and the prospect of a protracted conflict suggest oil prices will remain high for longer, complicating the Fed's inflation outlook. The central bank held rates steady at 3.5 percent to 3.75 percent for a second consecutive meeting.

Fed Chair Jerome Powell emphasized the uncertainty surrounding the economic impact of the war, telling reporters that 'nobody knows' how the outlook has evolved. While most officials still project a quarter-point rate cut by year-end, seven policymakers expect no changes at all. Waller said he would support cuts if the labor market deteriorates and the conflict's economic fallout is contained, though he warned that inflation remains the primary concern.