Federal Reserve Governor Christopher Waller said he was prepared to dissent in favor of a rate cut following the February jobs report, but that evolving inflation dynamics prompted him to change course.
Speaking with Steve Liesman on television, Waller described the inflation picture as having deteriorated and said it had become more worrying because the Strait of Hormuz remained closed two weeks after the initial closure. He linked that development to an increased risk of higher inflation, noting that oil price movements can eventually feed through into core inflation.
Waller acknowledged the payroll numbers and related breakeven calculations, saying there are reasons to believe the breakeven payroll figure could be very low. He added a personal observation - that while his analytical understanding of the math made sense, he found it difficult to reconcile the numbers on an emotional level.
The Fed governor said the continued closure of the Strait of Hormuz suggested additional inflationary pressure ahead. He warned that movements in oil prices have the potential to bleed through to core inflation at some point, a transmission he viewed as important to monitor.
On policy stance, Waller emphasized that exercising caution at this juncture does not imply the central bank will remain on hold for the remainder of the year. He said he does not know how the situation will evolve, but that prudence is warranted given current uncertainties.
Waller also said he would be prepared to advocate for rate cuts again later in the year if labor market conditions weaken. That leaves open a conditional path toward easing should employment trends soften.
Key takeaways
- Waller indicated he had been willing to dissent in favor of a rate cut after the February jobs report, but shifted position as inflation concerns intensified.
- The ongoing closure of the Strait of Hormuz was cited as a factor worsening the inflation outlook via oil price implications.
- Waller stressed caution now does not preclude future rate cuts if the labor market weakens later in the year.
Sectors likely affected
- Energy - through oil price developments that Waller said could influence inflation.
- Financials and interest rate-sensitive sectors - as central bank caution shapes policy expectations.
- Labor-exposed industries - since Waller tied potential future easing to weakening labor conditions.
Risks and uncertainties highlighted
- Persistence of the Strait of Hormuz closure - the governor said its continuation raised the risk of higher inflation, which could affect energy markets and inflation-sensitive sectors.
- Potential pass-through from oil prices to core inflation - Waller warned that oil moves can eventually translate into broader price pressures.
- Uncertainty about labor market trajectory - future policy choices were described as conditional on whether labor conditions weaken, creating uncertainty for markets and rate-sensitive sectors.