WASHINGTON, U.S.: A senior Federal Reserve official has signalled that interest rates could move in either direction in the coming months, with persistent inflation raising the possibility of a rate hike even as economic risks mount.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said the central bank may need to tighten policy if inflation remains above its 2% target, while also keeping the option open to cut rates if growth weakens.

"I can foresee scenarios where we would need to reduce rates ... if the labor market deteriorates significantly," Hammack said. "Or I could see where we might need to raise rates if inflation stays persistently above our target."

Hammack said her baseline preference is for the Fed to hold its benchmark interest rate steady "for quite some time," but emphasised that evolving economic conditions could force a shift.

Her remarks reflect growing unease among some policymakers that inflation, already elevated before the Iran conflict, could remain stubbornly high amid rising energy costs.

The war has driven up fuel prices, adding to inflationary pressure. Gas prices averaged $4.12 per gallon nationwide on Monday, up about 80 cents from a month earlier, according to AAA.

The Federal Reserve had cut rates three times late last year, but recent signals suggest officials are becoming more cautious about further easing.

Other policymakers have also opened the door to potential rate increases. Austan Goolsbee, president of the Chicago Fed, has indicated that hikes cannot be ruled out, while minutes from the Fed's January meeting showed several officials supported language acknowledging possible "upward adjustments" to rates.

Fresh inflation data due this week is expected to provide further clarity. Economists forecast that annual inflation could rise to 3.1% in March, up from 2.4% in February, according to FactSet. On a monthly basis, consumer prices are expected to have increased 0.8% — the sharpest rise in nearly four years.

Hammack said the Cleveland Fed's own projections suggest inflation could climb as high as 3.5% in April, marking its highest level since 2024.

"Inflation has been running above our target for more than five years now," she said, adding that further increases would mean it is "moving in the wrong direction, away from our 2% objective."

The Fed is tasked with maintaining both stable prices and maximum employment, goals that could be challenged simultaneously by rising energy costs.

Higher gas prices can weigh on consumer spending, potentially slowing economic growth and leading to job losses, which could in turn prompt rate cuts.

Hammack described the situation as presenting "two-sided risks," with policymakers needing to balance inflation concerns against the possibility of a weakening labour market.

The economic impact of the Iran conflict will depend on its duration and its effect on energy prices, she said. Now in its sixth week, the conflict has already lasted longer than expected when the Fed last met in mid-March.

Rising fuel costs have become a key concern for households. Hammack said it is "the No. 1 thing" she hears from people in her district, which includes Ohio and parts of Pennsylvania, West Virginia and Kentucky. "We know that causes a lot of pain personally, as it eats up a bigger and bigger share of people's paychecks. So it's important for us to stay focused on it," she added.