Federal Reserve Board Governor Waller backs removing easing bias and holding rates steady as Middle East energy shock lifts inflation risk

In a speech, Federal Reserve Board Governor Christopher Waller said he would support removing the Federal Open Market Committee's easing bias from its policy statement and keeping the policy rate unchanged for the near term, as the Middle East conflict has pushed up energy prices and increased the risk of more persistent inflation. He said a rate cut is no more likely than a rate increase, although he does not see a near-term case for hikes because policy is already restrictive and the labor market has stabilized rather than strengthened. Waller said recent labor market and inflation data had validated his support for a pause in rate cuts at the April FOMC meeting. He described the labor market as roughly balanced, with April unemployment at 4.3 percent and weak payroll growth consistent with near-zero labor force growth, while inflation had moved in the wrong direction. April consumer price inflation rose 0.6 percent, with energy up 3.8 percent and notable increases in groceries, apparel and services excluding energy, and he estimated 12 month personal consumption expenditures inflation at about 3.8 percent and core PCE inflation at about 3.3 percent. He said he would need either clearer improvement in inflation or a significant deterioration in the labor market before considering cuts, and could support rate increases later if the energy shock persists and inflation expectations show signs of becoming unanchored. He said the next policy move, whether a cut or a hike, will depend on incoming data and especially on how long the conflict lasts, how far higher input costs spread through other prices, and whether inflation expectations remain anchored.