Waller Sees Fed Navigating Inflation Risk Amid Energy Shocks and Slow Labor Growth

Fed Governor Christopher J. Waller lays out a cautious, dual-path outlook for the U.S. economy: underlying inflation is near 2% once tariff effects are stripped, but headline inflation jumped in March as energy prices surged after the Middle East conflict. He notes labor-force growth has slowed to near zero due to aging and very low net immigration, causing volatile payrolls and a tighter labor market. He presents two scenarios: if energy markets normalize and the Strait of Hormuz reopens, inflation should drift toward 2% and the Fed may delay rate cuts to support the labor market; if energy prices stay elevated and supply remains constrained, higher inflation could persist and growth slow, potentially keeping rates unchanged. He emphasizes watching inflation expectations and the labor market to guide policy amid uncertain duration of the conflict and its price effects.