Fed Board Member Waller hawkish! Supports removing "dovish bias," warns that if inflation gets out of control, restarting rate hikes is not ruled out

Are interest rate cuts about to close the door?
U.S. Federal Reserve (Fed) heavyweight Governor Christopher J.. Waller delivered the latest speech today (22nd), bluntly stating that the energy shocks caused by Middle East conflicts have led U.S. inflation in the "wrong direction."
He not only publicly supported removing the "dovish bias" from policy statements but also warned rarely: if inflation expectations show signs of de-anchoring, the option to "reopen rate hikes" cannot be ruled out.
(Background: New Fed payment account regulations released! Crypto firms just one step away from disconnecting from Fed clearing system)
(Additional context: Fed releases April FOMC minutes: Rising inflation may force interest rates to stay frozen longer, with the possibility of restarting rate hikes!)

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• Inflation developing in the "wrong direction," energy shocks spreading
• Supports removing "dovish bias," rate hike options back on the table
• Warns of "Bayesian updating" psychology, continuous shocks may boost inflation expectations

The U.S. Federal Reserve's (Fed) monetary policy stance is undergoing a critical shift. Fed Governor Christopher J. Waller delivered a speech titled "Policy Risks Have Changed" today (May 22, 2026) in Frankfurt, Germany, delivering a shock to the market.

In his speech, Waller explicitly pointed out that as the Middle East military conflict prolongs, the surge in energy prices has become impossible to ignore for the U.S. economy. He candidly admitted that the policy focus has shifted from concerns about the labor market to fully preventing inflation from re-accelerating.

Inflation developing in the "wrong direction," energy shocks spreading

Waller expressed strong concern about recent inflation data. He noted that the rise in energy prices triggered by Middle East conflicts is gradually permeating into other goods and services.

According to his estimates, the Fed’s most closely watched indicator—the Personal Consumption Expenditures Price Index (PCE)—is expected to have a year-over-year increase of 3.8% in April, hitting a three-year high; the core PCE, excluding food and energy, will also reach 3.3% (the highest in two and a half years). Moreover, up to half of consumer goods categories have seen price increases exceeding 3%, an extremely rare broad-based price rise in history. Waller solemnly stated:

"Inflation is not moving in the right direction... The longer energy price shocks persist, the greater the risk that these increases will spread to other goods and services prices."

Supports removing "dovish bias," rate hike options back on the table

Faced with the harsh reality of rising inflation, Waller’s policy stance has shifted significantly toward hawkish. Regarding the future monetary policy path, he presented three core points:

• Remove easing bias hints: Based on recent data, Waller supports deleting the phrase "easing bias" from the FOMC policy statement to clearly signal to the market that "the possibility of future rate cuts is not higher than rate hikes."
• Maintain current stance in the short term: Despite high inflation, he believes the current 4.3% unemployment rate indicates the labor market has stabilized (not overheating). At the current restrictive interest rate level, he supports "holding steady" and observing the development of Middle East tensions.
• Not ruling out restarting rate hikes: This is also the most alerting point for the market. Waller explicitly warned that if inflation remains stubbornly high, especially when "inflation expectations" show signs of de-anchoring, he will not hesitate to support raising the federal funds rate target range.

Warns of "Bayesian updating" psychology, continuous shocks may boost inflation expectations

Interestingly, Waller in his speech referenced the concept of "Bayesian updating" from probability theory to explain public psychology. He pointed out that although last year's "tariff shocks" and this year's "oil shocks" are both temporary when viewed individually, when the public encounters a series of positive price shocks consecutively, they are highly likely to change their inflation expectations for the future, making inflation more entrenched.

Waller summarized that U.S. inflation has failed to reach the 2% target for over five consecutive years, which is an "unpleasant arithmetic" that policymakers must face. Until inflation shows substantial improvement or the labor market deteriorates significantly, the door to rate cuts will remain temporarily closed.