Just caught up on what Waller said recently and there's something important here for anyone tracking Fed policy. The takeaway is pretty straightforward: rate cuts aren't happening unless inflation takes a serious nosedive.

Here's the thing—Waller's first major economic assessment since late February basically confirms the Fed has shifted its thinking. Back in February, there was still this debate about whether soft employment data warranted cutting rates. But then March happened. Two massive shocks hit back-to-back: the Iran situation disrupted Middle Eastern energy flows and sent oil prices spiking, and separately, immigration policy changes meant way fewer new workers entering the labor force than expected.

That second part matters more than people realize. Net immigration dropped from 2.3 million in 2024 to almost nothing in 2025. Combined with an aging population, this actually means the Fed doesn't need as many new jobs to maintain employment levels. So those three rate cuts we saw at the end of last year? Don't expect a repeat anytime soon under current conditions.

Now, Waller laid out two scenarios. The optimistic one assumes the Strait of Hormuz reopens, energy prices normalize, and inflation stays anchored. Oil futures are pricing in Brent falling to $82 by end-2026 and $75 by 2028. If that happens, the energy-driven inflation spike looks temporary and we might see rate cuts later in the year as things stabilize.

But here's where it gets real: what if oil stays elevated and the conflict drags on? Then you're looking at businesses passing higher energy costs through to everything else. Supply chain bottlenecks, fertilizer shortages, helium getting expensive—all of it feeding into broader inflation. We saw how painful that was in 2021-2022. If new shocks hit and inflation expectations break, the Fed would likely hold steady on rates despite a weakening job market. That's the tough spot.

So the verdict from Waller is clear: rate cuts depend entirely on how fast things normalize. A real peace deal and sharp reversal in energy prices are the key conditions. Without that inflation drop, the Fed stays on hold. Worth watching closely over the next few months because this is going to shape everything from asset prices to economic growth through the rest of 2026.