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Fed’s Waller signals caution on rate cuts

April 17, 2026

By Enda Curran | Bloomberg

Federal Reserve Governor Christopher Waller said he is cautious about the need to lower interest rates in the near term, due to the energy shock triggered by war in Iran, and warned of the risk of a prolonged impact on inflation due to the conflict.

Waller mapped out two main scenarios on how the Iran war and its impact on energy and commodity prices will guide his approach to monetary policy, in a speech Friday.

In the first scenario, a re-opening of the Strait of Hormuz and a return of trade flows to normal would allow officials to look through the spike in energy prices and focus on the soft jobs market later in the year, Waller said.

If that happens, “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 said Friday at Auburn University.

But he cautioned that oil futures prices and securities markets in general are underpricing the risk of a prolonged conflict.

“For inflation, the risk is that the longer the conflict drags on and energy prices remain high, the more likely it is that these elevated prices will bleed into other prices, as businesses incorporate costly energy input costs in setting their prices,” Waller said.

Were that to happen while the job market is weak, that would limit the scope for a policy response, he said.

In that case, Waller said he’d weigh the risks of higher inflation and a weaker labor market in considering the next step for rates. “That may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market,” Waller said.

Several Fed officials have signaled they favor holding interest rates steady when they meet April 28-29 in Washington.

Iran said on Friday the Strait of Hormuz is open to all ships — a statement that, if true, will free up millions of barrels of crude oil and fuel stuck inside the Persian Gulf. US President Donald Trump said in a social media post that Hormuz was open — though an American blockade of Iranian shipping remains in place. Oil and natural gas prices plunged and stock markets rallied on the news.

On the labor market, Waller said the collapse in immigration likely means “very little or no net job creation is necessary to absorb new workers into employment.”

“This development is unprecedented in recent history, and I believe it is a significant factor in understanding the economic outlook and what that means for monetary policy,” Waller said.

Orange County Register

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Fed’s Waller signals caution on rate cuts

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