Federal Reserve Governor Chris Waller said on Friday that interest rates should remain at current levels because higher oil prices could have a lasting impact on inflation. But he’s not ruling out rate hikes if inflation doesn’t come back down.
“My current policy position is to hold rates steady for the near term,” Waller said in a speech titled “Policy risks have changed” in Frankfurt, Germany.
“But I can no longer rule out rate hikes further down the road if inflation does not abate soon, and that is especially true if measures of inflation expectations, some of which have risen lately, show signs of becoming unanchored.”
Waller stressed that he doesn’t think the Fed should be considering rate increases in the “near future.”
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
He cautioned that raising rates now could cause damage, noting that the oil shock’s effect on prices could dissipate soon, in which case, raising rates could only begin to bite after inflation has started coming back down. He said interest rates are still restricting the economy right now.
Still, Waller said inflation is not headed in the right direction, and based on recent data, he would support removing the “easing bias” language in the Fed’s policy statement to make it clear that a rate cut is no more likely in the future than a rate increase.
Federal Reserve Board Governors Christopher Waller participates in a Board meeting at the Federal Reserve on March 19, 2026 in Washington, DC. (Kevin Dietsch/Getty Images) · Kevin Dietsch via Getty Images
To support cutting rates, Waller said he would need to see inflation improve or a “significant deterioration” in the job market.
Waller, for some time, was more worried about the job market and was one of the most dovish members of the Fed, supporting rate cuts. He now says inflation is the bigger concern, as he sees the job market as stable. He noted that inflation will largely be determined by the length of the Iran conflict — namely, how severely supply chains are disrupted and the pass-through of input costs to final product prices. He said the impact of these factors on inflation is more uncertain than the impact of tariffs.
The latest inflation reports have caught Waller’s eye. He said he thought the April reading of the Consumer Price Index showed a broadening of price increases, pointing to grocery prices up 0.7%, apparel up 0.6%, and services excluding energy up 0.5%.
“These are all sizable monthly growth rates and come on the heels of other significant increases,” he said. “Also concerning is how broad price increases have been lately.”
Taking into account producer prices, which were up 6% in April, he estimates the Fed’s preferred measure of Inflation — the Personal Consumption Expenditures index — rose around 3.8%, the highest in three years. On a “core basis,” which excludes the volatile energy and food prices, he estimates PCE is 3.3%. That would be the highest in two and a half years.