Just caught Christopher Waller's latest economic take and it's pretty telling about where the Fed is headed on rate cuts. This is his first major policy speech since late February, and the timing matters because we've had some wild swings—Iran conflict, shifting energy markets, immigration policy shifts—all compressed into basically two months.

Here's what stood out to me: back in February, inflation was hovering just above the Fed's 2% target, and there was real debate about whether they'd start cutting rates to support employment. But things have shifted significantly since then.

March threw two major curveballs. First, the Iran situation spiked energy prices globally. Second, and this is huge for the employment picture, immigration data came in way lower than expected. Net migration dropped dramatically from 2.3 million in 2024 to minimal levels in 2025, which actually changes the labor market math. Fewer new workers means the Fed doesn't need as much job creation to maintain employment levels. That's a big deal for how they think about fed rate cuts going forward.

Here's the critical part: Waller basically said fed rate cuts are off the table unless we see a sharp drop in inflation. The soft employment data that came out recently? The Fed no longer sees it as a real threat to maximum employment. So those three rate cuts from late 2025? Don't expect that pattern to repeat.

Waller laid out two scenarios. Best case: the Strait of Hormuz reopens, oil prices normalize to $82 by end of 2026, energy-driven inflation moderates, and maybe—just maybe—the Fed considers easing later this year. In this scenario, fed rate cuts become possible once inflation stabilizes.

Worst case: the conflict drags on, oil stays elevated, supply chains tighten again (remember 2021-2022?), and inflation spreads beyond just energy. If that happens, the Fed stays patient and holds rates steady. No fed rate cuts. Instead, they're watching to see if inflation expectations become unanchored.

The bottom line Waller's signaling: the Fed's moves in 2026 depend entirely on how fast things normalize. If we get a real peace deal and energy prices reverse sharply, then fed rate cuts could be back on the table. But right now, the bar for rate cuts is high. Inflation has to move decisively lower, and the geopolitical situation has to stabilize. Until then, expect the Fed to stay cautious and hold steady.