What are the two main scenarios Governor Waller outlined regarding the Iran war's impact on Fed rate decisions?

Governor Waller outlined two scenarios: first, if the Strait of Hormuz reopens and trade normalizes, energy price spikes would be temporary, allowing the Fed to 'look through' them and remain cautious about near-term rate cuts—potentially favoring cuts later in the year to support a softening labor market; second, if the conflict drags on and energy prices stay elevated, those costs could bleed into broader inflation, limiting the Fed’s ability to cut rates—especially if the labor market remains weak—potentially warranting a decision to hold rates steady if inflation risks outweigh labor market risks.

Why does Waller say the collapse in immigration is significant for monetary policy?

Waller stated that the collapse in immigration means 'very little or no net job creation is necessary to absorb new workers into employment,' calling this development 'unprecedented in recent history' and a 'significant factor in understanding the economic outlook and what that means for monetary policy.'

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Fed's Waller Signals Caution on Rate Cuts Amid Energy Shock Risks

Apr 17, 2026

Federal Reserve Governor Waller warned that prolonged conflict could sustain high energy and commodity prices, complicating inflation control and delaying potential interest rate cuts. He emphasized the risk of elevated input costs bleeding into broader prices.

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