Fed Speeches: Waller Warns of One Transitory Shock After Another

Among the Fed speeches delivered in the spring of 2026, few captured the mood inside the central bank as clearly as the one Governor Christopher J. Waller gave on April 17 at Auburn University. Speaking at the David Kaserman Memorial Lecture, Waller titled his remarks “One Transitory Shock After Another,” and the phrase did a lot of work. It conceded that each disturbance hitting the U.S. economy could, on its own, be treated as temporary. It also hinted at the problem that keeps central bankers up at night: when temporary shocks arrive in a steady procession, the public may stop believing any of them are temporary.

Two shocks, one sequence

Waller’s account began with the import tariffs introduced roughly a year earlier, which he said had pushed inflation up considerably through 2025 and into 2026. Before the second shock arrived, he described an economy in which the underlying trend, once tariff effects were stripped out, was running close to the Fed’s 2 percent goal. Through February, he noted, headline PCE inflation stood at 2.8 percent and core at 3.0 percent, with much of the excess attributable to tariffs rather than broad price pressure.

The second shock was the conflict involving Iran that began on February 28, 2026, which disrupted energy production in the Middle East and global oil supplies. Waller pointed to Brent crude moving from about $61 a barrel in January to roughly $95 by April, and to gasoline climbing to about $4.10 a gallon, up by around a third since the conflict began. The energy component of consumer prices, he observed, jumped sharply in March alone. He also flagged the risk that a closure of the Strait of Hormuz could keep energy prices high and extend supply-chain strains.

Viewed separately, a tariff increase and an oil spike are textbook examples of shocks a central bank can look through. They raise the price level once rather than setting off a lasting rise in the rate of inflation. Waller’s argument was that the textbook is less comforting when the shocks stack up. A sequence of shocks, in his framing, required policymakers to be more vigilant than any single event would justify, because households and businesses that have lived through several years of above-target inflation may begin to build higher inflation into their plans.

A labor market with less room to run

The second half of the speech turned to the labor market, where Waller described a structural shift that complicates the reading of monthly data. Net immigration, he said, had collapsed from about 2.3 million in 2024 to around 400,000 in 2025 and minimal levels since. Combined with an aging population, that left labor force growth near zero. One consequence is that the breakeven pace of job creation, the number of jobs needed each month to keep unemployment steady, had fallen from a range of 50,000 to 150,000 to something close to zero.

That matters for interpretation. Payroll reports had been volatile in the months before the speech, swinging between losses and gains of well over 100,000. In a world of slow labor force growth, a weak print does not necessarily signal a deteriorating market, and a strong one does not necessarily signal overheating. Waller nonetheless saw signs of fragility: low hiring and low layoffs, workers staying unemployed longer, and an unemployment rate that was steady but, in his view, vulnerable to a shift.

Two scenarios for central bank policy

The policy section laid out two paths. In the first, the Strait reopens and energy prices settle. Underlying inflation would then keep moving toward 2 percent, and Waller said he would be inclined to wait before supporting further rate cuts, becoming more open to easing once the outlook steadied. In the second, the conflict drags on, energy prices stay elevated, and higher costs work their way into a wider range of goods and services just as the labor market weakens. He described that combination of high inflation and a soft labor market as very complicated, and suggested he might favor holding the policy rate where it was if inflation risks outweighed employment risks.

What stands out is the asymmetry. Waller did not argue for a near-term cut in either scenario. The best case was patience; the worse case was a hold under pressure. For a policymaker who spent a large share of the speech on labor market fragility, the decision to let inflation expectations set the terms was a telling signal about where the debate on the Federal Open Market Committee was heading.

Reading the Fed speeches against later events

Read with the benefit of a few months’ distance, the speech looks like an early marker on a road that the Fed would travel through the summer. Less than two weeks later, the Committee held its target range at 3.50 to 3.75 percent, and three voters dissented against language in the statement that leaned toward easing. Waller’s framing gave intellectual cover to colleagues who wanted to stop treating each new price shock as noise.

It also offered a useful lens for comparing the Fed with its peers. Central banks in Europe and the United Kingdom faced the same energy shock, but from different starting points: the euro area with lower underlying inflation and weaker growth, the U.K. with a labor market showing more slack. Waller’s insistence that a series of transitory events can add up to something persistent is a general argument, and versions of it would surface in policy statements on both sides of the Atlantic in the months that followed.

What to take from it

The speech is best understood not as a forecast but as a decision rule. Waller told his audience what he would watch, energy prices, the breadth of price increases, and the labor market’s reaction, and how each outcome would shape his vote. That kind of conditional guidance is more durable than a point forecast, because it remains useful when the facts change.

For readers tracking central bank policy, the lasting lesson is the one embedded in the title. A single shock can be waved through. A run of them changes the burden of proof, and Waller signaled in April that the burden had shifted toward showing that inflation would come down, rather than assuming it would.