Waller: U.S. Inflation Risks Tilted to the Upside, Policy Balance Has Shifted
Taylor Wilson
Fed Governor Waller said high inflation has replaced a weak labor market as the top risk, tilting the policy balance from rate cuts toward possible hikes — forcing markets to reprice the Fed's next move.
Why did Waller's stance flip 180 degrees?
A year ago Waller argued for rate cuts, citing a soft labor market and a willingness to tolerate a slower path back to the 2% target.
Now he says "those risks have completely reversed" — employment is stabilizing while inflation is rising.
This means → the internal policy debate has shifted from "do we rescue jobs?" to "do we fight inflation?" — the direction is entirely reversed.
What do the jobs and inflation numbers show?
The June payrolls report came in below expectations, but the unemployment rate fell from 4.3% in May to 4.2% — the labor market is not deteriorating.
Fed officials' June projections still show their preferred inflation gauge ending the year more than a full percentage point above the 2% target.
In plain terms = jobs are holding up, but prices are not coming down — the pressure on the Fed now concentrates squarely on inflation.
Can falling oil prices help?
Global oil has dropped to roughly $70 a barrel, close to levels before the U.S.-backed conflict with Iran began.
Lower oil eases headline inflation, yet Fed officials still project inflation well above target by year-end.
This reflects a deeper problem: the core drivers of inflation are sticky domestic forces, not energy — oil alone will not do the job.
When does the market expect a rate hike?
Markets price the earliest hike at the September meeting; the odds of a July hike sit at roughly one in four.
SGH Macro Advisors chief U.S. economist Tim Duy notes that nine Fed officials now project tightening this year — "a rate hike is on the table."
He adds: with unemployment relatively low and inflation persistently above target, "the Fed is deviating from its mandate on only one side — that should no longer be controversial."
What is the next key checkpoint?
The Fed voted unanimously in June to hold rates steady — the first meeting chaired by new Chair Kevin Warsh.
June CPI data, due July 14, is the last major release before the July 28–29 meeting.
This means → that single CPI print will directly test Waller's "inflation risk tilts to the upside" call — and may determine whether the July meeting holds steady or sends a stronger hike signal.
Content is for reference only, not financial advice.