Governor, Federal Reserve Board of Governors
Fed Governor Chris Waller on interest rate outlook: Caution is warranted
CNBC’s Steve Liesman and Fed Governor Christopher Waller join 'Squawk Box' to discuss the state of the economy, impact of higher oil prices on the Fed's interest rate outlook, inflation concerns, impact of tariffs, state of private credit, and more.
About Christopher Waller
On June 22, 2026, Federal Reserve Governor Christopher Waller delivered welcoming remarks at the Fifth Conference on the International Roles of the U.S. Dollar, co-hosted with the Federal Reserve Bank of New York. Waller described the international monetary system as being "in a period of profound change" and noted that technological innovation, particularly distributed ledger technologies and tokenized assets like stablecoins, is "creating new channels for global dollar intermediation that operate alongside or sometimes in conjunction with traditional banking and payment systems." He stated that the dollar's international role is evolving as a result. Waller expressed that increased competition from the private sector in financial services is beneficial, saying, "As an economist, I believe that is a good thing. More competition generally leads to better outcomes for both consumers and society as a whole." Waller also commented on the passing of former Federal Reserve Chairman Alan Greenspan, calling it "a sad day for the Fed." In his remarks, Waller noted that the conference papers would examine topics such as the rapid growth of stablecoin-based transactions, decentralized foreign exchange trading, alternative cross-border payment rails, and whether stablecoins may reinforce or introduce tensions into the international monetary system. At the outset of his speech, Waller said, "For all the networks, no forward guidance from me today. Maybe later, but not today."
Transcript (25 segments)
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Host0:00
Time now for an exclusive interview with Fed Governor Waller. Christopher Waller. Let's get to Steve Leisman.
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Steve Leisman0:06
Great time for this. Steve, in light of everything, I guess.
Yeah, in light of everything is a good way to put it. Joe, thanks very much. We're here in Washington with Fed Governor Chris Waller. Governor, thanks for joining us this morning.
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Christopher Waller0:17
Well, thanks Steve. Great to be back.
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Steve Leisman0:19
Well, let's talk about the idea of the main stories out there, which is this higher oil price. And you were a couple weeks ago not that concerned. Has your views changed given what's happened with the Strait of Hormuz moves and what's happening in the war in Iran?
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Christopher Waller0:32
Yeah, so two weeks ago when the jobs report came out and it was, you know, negative 92,000, I thought that's it. I'm dissenting. I'm supporting a rate cut because at that time exactly, it looked to me like this was going to be a very short-lived spike in oil. No inflation issues. Look through it. Since that time, the Strait of Hormuz was closed. This is looking like it's going to be a much more protracted conflict and oil prices are going to stay high for a longer time. So that suggested inflation was more of a concern than I was putting it. The second piece of information that came out and Chair Powell talked about this a bit on the press conference was that we've seen a lot of research recently that suggests that this year labor force growth is going to be zero or close to zero.
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Steve Leisman1:16
If that's the case, then you don't need any, you know, zero is the break even for net new jobs
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Christopher Waller1:23
for the unemployment rate not to change.
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Steve Leisman1:25
Yeah. Exactly. And then for the last 3 months, it's averaged right around zero. So, I'm kind of in this kind of odd spot where like my brain understands the math, but I can't get through my gut that this is okay.
C
Christopher Waller1:39
Right. So that was kind of one of the things that we
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Steve Leisman1:42
just to emphasize that what you're saying is a zero doesn't seem like it's enough but you're saying the math suggests it is enough to keep the unemployment rate.
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Christopher Waller1:52
Yeah. I've been doing this for 45 years as an economist and if you told me zero was normal I'd say you got to be out of your mind.
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Steve Leisman1:57
and you'd be saying the Fed needs to respond to that in the job market.
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Christopher Waller2:00
I mean the idea we'd get a minus 92,000 and the Fed would go eh, whatever, you know your head would explode.
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Steve Leisman2:07
So, let's talk about your general framework for thinking through a rise in the price of oil and what that would mean for policy. How much concern do you have that it bleeds into the core?
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Christopher Waller2:18
Well, that's the issue. If it's a very high level and it stays high for months on end, then at some point it bleeds through because oil is an input into so many products. This is very different than say a tariff on toys. You put a tariff on toys, it doesn't bleed through into all the other goods in the economy, but oil is a major intermediate import and it will at some point bleed through and that's where you worry about high and persistent oil shocks. It's not like a transitory goes up and then comes right back down.
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Steve Leisman2:44
What does the history tell you about what the Fed did right and what it did wrong? Obviously, Bernanke in 1996 wrote a paper that said the Fed over responded from the 70s and the 80s and made the recession worse. At the same time, you've just been through a period of time here where you sort of ignored what you thought was a transitory increase in prices and you ended up with higher and persistent inflation.
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Christopher Waller3:08
Yeah. I mean, that's in the 70s, people forget it wasn't a one-time oil shock. It was a sequence of oil shocks. So, you know, there if you get a bunch of one-off things, it starts looking permanent. It doesn't look like a temporary, you know, just a few one-off things. But in responding to all that in the 70s, everybody kind of realized that maybe this was a mistake and you have to look through this stuff. And that became pretty much central bank wisdom from the 80s on is these kind of oil price things. They go up, they come back down. You don't respond to them. I always want to point out that something where the oil goes up and then it comes down is very different than oil goes up and then stays there for a long time. That's where you get back to this issue when it bleeds through back into core inflation and then you do have to kind of respond. You can't just look through it. So that's one of the critical things that I started thinking about this inflation problem may be worse than I think it is if this continues. Now we'll wait and see. We don't know where this is going to go but we have to sort of think maybe caution is warranted and it brings me back to one of the last points I wanted to make. In March of 22 before we were going to lift off of the zero lower bound in March of 22 and I had been advocating that we should go off by 50, get off immediately, raise rates by 50 basis points after that Russia invaded Ukraine and everybody was it's kind of the same boat as here, you know, caution is warranted so don't do anything right now and that's the same approach I took this time. It doesn't mean that I'm going to stay put for the rest of the year. I just want to wait and see where this goes. And as if things go reasonably well and labor market continues to be weak, I would start advocating again for cutting the policy rate later this year.
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Steve Leisman4:51
Walk me through the horizon of different policy outcomes that you think. Chair acknowledged that there was a discussion at the meeting of rate hikes. Where do you stand on that possibility?
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Christopher Waller5:03
Well, I think if people are worried, I'm not speaking for any of my colleagues. I'm just laying out some theoretical points. If you think inflation, say December of 2024 was headline PCE was 2.8. It's 2.8 roughly now. So there's like no change in inflation in all that time. And if you're worried about it going up from here then there's a sense in which people say look we've got to raise rates to get inflation back down and under control. I have taken the view that if it was 2.8 in December of 24 and 2.8 now it's not structural because if it was structural and you believe tariffs were being passed through by 50 to 100 basis points then inflation should be running three and a half to four not 2.8. So if tariffs had any pass through effect then structural had to come down to maintain 2.8.
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Steve Leisman5:59
I hope people get that math. It's pretty interesting right?
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Christopher Waller6:01
It's, you are, we are making progress on
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Steve Leisman6:05
a half to one from tariffs. Yep. You had 2.8. You are 2.8. So therefore it should be 3.5. Something had to go down in there.
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Christopher Waller6:10
So it didn't go down. So you think that the structural inflation rate is probably more like two right now.
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Steve Leisman6:15
It's getting closer to two. That's why I think once you get past the tariffs and maybe the second quarter, you're going to see inflation come back down for just this reason. Once the tariff effects wash through, then all that's left is whatever structural change. Now, if you think it's going to go bouncing way back up, but I don't think there's a need for rate hikes because of this kind of math argument I was just giving you that we're, yeah, we're not seeing any progress, but that's because tariffs are pushing it up while structural stuff is bringing it down. And on that, it stays the same. Private.