April 17 (Reuters) - Federal Reserve Governor Christopher Waller said on Friday the Middle East War is likely to drive up inflation near term and creates a challenging outlook for monetary policymakers, although he said a fast end to the troubles would keep the door open to cutting interest rates again later this year.

"The longer energy prices remain elevated and the Strait is constrained, the greater the chances that higher inflation gets embedded across a wide variety of goods and services, various supply chain effects start to emerge, and real activity and employment start to slow," Waller said in the text of a speech to be delivered before a gathering at Auburn University.

If high inflation and weak hiring came to define the economy, "I'll have to balance the risks to the two sides of the Fed's dual mandate to determine the appropriate path of policy, and that may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market," the official said.

He added that if there was a swift resolution to the conflict, "I see a forecast in which underlying inflation would continue to move toward 2%, leaving me cautious about rate cuts now and more inclined toward cuts to support the labor market later this year when the outlook is more steady."

Waller flagged considerable uncertainty around what is happening and noted that it's getting harder for the Fed to shrug off what would normally be transient shocks to the economy. "With a sequence of shocks, policymakers need to be more vigilant," Waller said, adding "this is because if the shocks hit one after another, they will keep inflation elevated for quite some time."

In the near term, Waller said he's looking for the overall personal consumption expenditures price index to hit 3.5% in March, well above the Fed's 2% target. He also said changes in the job market meant that the level of job creation needed to hold the unemployment rate steady now stands at around zero, which means that job losses in a given month need not necessarily signal a recession.

Waller's remarks are likely to be the last from central bankers on monetary policy as officials go into their blackout period ahead of the April 28-29 Federal Open Market Committee meeting. At that gathering officials are widely expected to hold their current interest rate target rate range steady at between 3.5% and 3.75%, as they continue to look for evidence on how the Middle East war is impacting the economy.

Fed officials have been wary of offering clues about what could lie ahead for interest rate policy amid the rapid oscillation of events surrounding the war launched by U.S. President Donald Trump and Israel against Iran. That conflict has caused energy prices to spike, driving up already high overall inflation while running a strong risk that underlying inflation, which is also above the central bank's 2% target, will also start drifting up.

In remarks on Thursday New York Fed leader John Williams said he foresees overall inflation going "well above" 3% for a few months. With so much uncertainty, "it's not a time to try to give...strong forward guidance" about the outlook for interest rates, he said.

Waller also weighed in amid rapidly shifting events tied to the war. If the latest diplomatic moves are sustained it could lead to a more benign economic outlook.

On Friday, Iran said the Strait of Hormuz is "completely open" for transit amid an ongoing ceasefire, even as Trump said the U.S. would maintain its blockade of that nation's ports. Oil prices dropped and stocks surged while investors moved to increase odds the Fed will cut its interest rate target by the end of the year.