Just caught Waller's latest remarks and this one's worth paying attention to. The Fed official basically confirmed what markets have been sensing—rate cuts are off the table unless inflation takes a dramatic nosedive. This is his first major policy speech since late February, so the timing matters given everything that's shifted in the global economy over the past couple months.

Here's what's interesting about where the Fed's head is at right now. Back in February, inflation was hovering just above that 2% target the Fed keeps talking about. Everyone was debating whether the labor market was tight enough to justify rate cuts or if they should hold steady and let inflation cool. Fast forward to now and that conversation has completely changed.

Two things happened that basically rewired Fed thinking. First, the Middle East tensions spiked energy prices across the board. That's the kind of supply shock central banks usually brush off as temporary, but if it sticks around, it starts bleeding into broader inflation and economic growth. Second—and this is the bigger story—immigration policy changes have fundamentally altered the labor supply picture. Net immigration dropped from 2.3 million in 2024 down to basically minimal levels in 2025, and it's expected to stay low. What that means is the labor market doesn't actually need as many new jobs to maintain full employment as people thought. The supply-side concerns everyone was worried about turned out to be less severe.

So now the Fed's calculus has shifted. Waller laid out two scenarios, and honestly, they paint pretty different pictures. In the optimistic case, the Strait of Hormuz reopens, energy flows normalize, and oil prices drift down to $82 by end-2026. If that happens, the inflation spike we've seen is just temporary noise, and the Fed could potentially look at rate cuts later in the year as things stabilize. But—and this is a big but—that assumes oil futures aren't being overly optimistic.

The risk scenario is messier. If Middle East tensions drag on and energy stays expensive, businesses start passing those costs to consumers across the board. Supply chains get pinched, fertilizers and commodities get more expensive, and suddenly you're not just dealing with an energy shock—it's spreading everywhere. We saw how that played out in 2021-2022, and it wasn't pretty for inflation.

What Waller's essentially saying is that the Fed's not going to be jumping into rate cuts anytime soon. The soft employment data everyone was worried about? Turns out it's not actually threatening maximum employment given the immigration situation. So you can forget about the kind of rate cut cycle we saw at the end of last year. The only real path to rate cuts is if inflation drops sharply and stays down.

His base case seems to be watching how fast things normalize. If there's a real peace agreement in the next week or so, risk assets could rally harder and energy prices could reverse course. That's the condition that would actually make the Fed comfortable considering rate cuts in 2026. But if the conflict lingers and energy stays elevated, inflation spreads, economic activity softens, and the Fed probably just holds rates steady while inflation runs hotter for longer. It's basically a watch-and-wait situation, but the bias is clearly toward patience on rate cuts until inflation gives them a real reason to move.