Fed’s Waller Backs Holding Rates As Inflation Risks Rise Despite Weak Jobs

TLDR

• Waller moved from backing a rate cut to supporting a wait and see stance.
• He cited Strait of Hormuz tensions and a longer oil price shock.
• Waller said oil can pass through to core inflation over time.
• Inflation stayed near 2.8% since December 2024, despite tariff pressure.
• He said the Fed could still consider cuts later this year if risks ease.

Federal Reserve Governor Christopher Waller backed holding interest rates steady after rising oil risks changed his view. He had supported an immediate rate cut earlier, but he now favors a wait and see approach.

Waller said the closure of the Strait of Hormuz and wider tensions in the Middle East raised the chance of a longer oil shock. He told CNBC that caution is needed while the conflict and price risks remain unclear.

Waller shifts from cut support to a cautious hold

Waller said the recent move in oil prices no longer looks brief. He said the conflict may last longer, and that changes the policy outlook. He added, “Caution is warranted… I just want to wait and see where this goes.”

His latest comments mark a change from his earlier support for a near term rate cut. Even so, he did not rule out cuts later this year. He said he could still support easing if conditions improve and inflation risks fade.

Waller’s position comes as markets watch both inflation and labor data closely. The jobs backdrop has shown weakness, but he signaled that inflation risks now carry more weight in the current setting.

Oil prices become a central concern for inflation

Waller drew a clear line between tariff effects and oil shocks. He said tariffs often hit selected goods, but oil affects transport, production, and other costs across the economy.

He warned that a lasting rise in oil prices could spread into core inflation. “Oil is a major intermediate import, and it will at some point bleed through,” he said. That concern helped shape his support for holding rates steady.

His remarks suggest the Fed may place more focus on energy driven price pressure in the near term. A broader rise in costs could make it harder to move policy toward cuts, even if job growth slows.

Waller says underlying inflation may still be easing

Waller also made a case that underlying inflation may be cooling. He noted that inflation has held near 2.8% since December 2024, even though tariffs likely added 50 to 100 basis points to prices.

Based on that math, he said structural inflation must be moving lower. That view offers some support for future rate cuts, but not while oil risks remain high and the path ahead is uncertain.

For now, Waller’s message is centered on patience. He backed holding rates because oil related inflation risks have increased, even as the labor market shows signs of weakness. His stance points to a Fed that is still open to cuts, but not ready to act immediately.

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