Fed Governor Christopher Waller said on July 6, 2026, that inflation risks are tilted upward. Six months earlier, he was considering cutting interest rates. What changed? An oil shock in March — tied to the war in Iran — shifted his thinking Federal Reserve Reuters.

Markets now estimate roughly a one-in-four chance the Fed will raise rates at its July meeting Reuters.

How His Thinking Evolved

In late January, Waller said inflation was higher because of new tariffs, but the Fed should not overreact to them Federal Reserve. By February, he was clearer: the core inflation measure — the one that excludes volatile food and energy — was near the Fed's target of 2%. He argued the Fed should ignore tariff-driven price jumps and focus on the bigger picture Federal Reserve. At that point, he seemed open to lower rates.

Then March happened. An oil shock disrupted energy prices and raised inflation concerns worldwide. Waller had been planning to vote for a rate cut that month, but the oil shock changed his mind Reuters. By April, he was citing higher inflation numbers — 3.3% on a twelve-month basis — and cautioning against rushing to cut rates Federal Reserve.

By May, Waller had moved further. He said the Fed should drop its assumption that lower rates were coming, though he wasn't yet calling for higher rates Reuters. He told Bloomberg the Fed's next move could just as easily be a rate hike as a cut Bloomberg.

Why It Matters

Waller's shift shows how quickly the Fed's calculus can change when real-world shocks hit. An oil shock in March flipped one influential Fed official from considering rate cuts to warning about inflation within months. His reasoning: higher energy prices push up inflation for everyone, and the Fed may need to keep rates steady or raise them rather than cut.

Waller also said the Fed should stay flexible with its public messaging about rates — not lock in a plan too far ahead. That suggests the Fed may stop trying to promise investors what comes next and instead make decisions meeting by meeting based on new inflation data. The July jobs and inflation reports arriving in coming weeks will test whether other Fed officials move his direction.