Lael Brainard: The war has changed the outlook for inflation dramatically

• The Fed's initial expectation of rate cuts this year has shifted to an 'extended pause' due to war-driven inflationary pressures, with some policymakers considering two-sided risks (rates could go up).
• Rising gas and diesel prices are flowing through to food and other prices, contributing to inflationary concerns and weighing on consumer sentiment.
• The possibility of stagflation is a real concern, as the Fed aims to bring inflation back to 2% while maintaining a strong labor market amidst slowing hiring.

Lael Brainard, former Federal Reserve Vice Chair, discusses how the Middle East conflict has dramatically altered the inflation outlook, leading the Fed to shift from anticipated rate cuts to an extended pause, with potential for rate hikes. She highlights the risk of stagflation and the Fed's balancing act between managing inflation and avoiding an economic slowdown, while noting consumer resilience is waning due to high energy prices.