Federal Reserve Speeches·Apr 17, 2026, 2:00 PM ET

Waller, One Transitory Shock After Another

The U.S. economy grew modestly in the first quarter of 2026 at an annualized rate of 2.4%, driven by business investment in data centers & high-tech equipment despite soft consumer spending.
Net immigration fell to minimal levels in 2025 & remains low in 2026, causing labor force growth to approach zero & reducing the number of new jobs needed to keep unemployment steady to near zero.
The labor market shows volatility with alternating payroll gains & losses, while employers remain hesitant to hire due to uncertainty or retain workers due to past hiring difficulties.
Underlying inflation excluding tariff effects was near 2% through February 2026, but the conflict with Iran has surged energy prices, pushing headline PCE inflation to an estimated 3.5% & core PCE to 3.2% in March.
A baseline scenario assumes progress in reopening the Strait of Hormuz, which would allow energy prices to fall, inflation to return toward 2%, & policy to focus on supporting the labor market with rate cuts later in 2026.
A second scenario involves prolonged conflict & closure of the Strait of Hormuz, which risks embedding higher inflation across goods & services, slowing economic activity, & creating a complex policy dilemma.
The speaker warns that a sequence of shocks, including tariffs & energy disruptions, could cause inflation expectations to rise, making the standard "look through" approach problematic.
Monetary policy responses will depend on the conflict's duration, with rate cuts likely in a normalizing scenario but potential rate maintenance required if high inflation & weak labor markets coexist.