Federal Reserve Governor Christopher J. Waller delivered a speech titled One Transitory Shock After Another on April 17, 2026, at the David Kaserman Memorial Lecture at Auburn University. Waller addressed the U.S. economic outlook and its implications for monetary policy, focusing on the recent geopolitical disruptions in the Middle East and their impact on domestic inflation and labor market dynamics.
Waller noted that the conflict with Iran has significantly altered the economic landscape since his last outlook speech in February. The disruption of energy production and transportation in the Middle East, particularly the constraints on the Strait of Hormuz, led to a 10.8 percent jump in the energy component of the consumer price index in March alone. Waller stated that while central bankers typically discount temporary supply shocks, a prolonged disruption could have a lasting effect on inflation and economic growth.
According to the data presented by Waller, twelve-month headline inflation reached 3.3 percent in March, while core inflation stood at 2.6 percent. He provided estimates for the Federal Open Market Committee’s preferred measure, personal consumption expenditures prices, suggesting March headline PCE will stand at approximately 3.5 percent with core PCE at 3.2 percent. Waller emphasized that neither measure is close to the Fed’s 2 percent target, and the sequence of shocks makes it increasingly difficult for policymakers to ignore transient price increases.
The governor outlined two primary scenarios for the path forward. If the conflict is resolved quickly and the Strait of Hormuz reopens, the energy price spike may prove temporary, allowing the Fed to shift its focus toward a softening labor market. However, if the conflict persists, Waller warned that higher energy costs could bleed into other goods and services, embedding inflation across the economy. In the latter case, Waller indicated he would advocate for maintaining the current policy rate to prioritize price stability over employment risks.
Regarding the labor market, Waller highlighted structural shifts that have reduced labor force growth to near zero. He cited a sharp decline in net immigration, which fell from 2.3 million in 2024 to approximately 400,000 in 2025, with expectations of near-zero growth in 2026. Combined with an aging population and high retirement rates, Waller noted that fewer new jobs are now required to keep the unemployment rate steady compared to previous years.
Waller, who had previously signaled a preference for rate cuts due to labor market concerns, concluded that the current environment requires increased vigilance. He stated that the Federal Reserve must remain cautious about near-term rate reductions until there is greater clarity on the duration of the Middle East conflict and its ultimate impact on the inflation trajectory.