Fed Governor Waller says Iran war and labor market risks are keeping central bank on hold
U.S. Federal Reserve Governor Christopher Waller speaks during the C. Peter McColough International Economic Series at the Council on Foreign Relations on Thursday, October 16, 2025, in New York, United States.
Michael Nagle | Bloomberg | Getty Images
Federal Reserve Governor Christopher Waller said Friday that current economic conditions complicate the approach to interest rates, with policymakers facing a potentially prolonged inflation shock and a labor market that is lacking employment growth but still appears stable.
In this context, Waller said that the Fed may have to stay on hold for a long time until the economic direction becomes clear.
“High inflation and a weak labor market would be very complex for a policymaker,” the central banker said in a speech in Alabama. “If faced with this situation, I would have to balance the risks of both sides of the Fed’s dual mandate to determine the appropriate policy path, and that could mean keeping the policy rate within its current target range if risks to inflation outweigh risks to the labor market.”
The speech comes as markets expect the Fed to remain on hold this year amid a cloudy economic outlook.
For Waller, the address marked a departure from his previous assessment of the labor market. He has expressed concern about the low level of hiring in recent months but said on Friday that there was growing evidence that the breakeven rate, where the pace of hiring was sustaining the unemployment rate, could be close to zero.
Waller had supported lowering interest rates but voted in March to keep the benchmark federal funds level between 3.5% and 3.75%.
But he said he still has concerns about the labor market.
“My sense is that employers are walking a tightrope between their previous difficulties in finding qualified workers and where they think the economy is going, and that leaves them vulnerable to some economic shocks that could tip over and lead to significant job declines,” he said.
When it comes to inflation, the other side of the Fed’s dual mandate, Waller said he is less optimistic than other policymakers and forecasters who see the impact of the Iran war as temporary.
“Beyond the length of these disruptions, I believe there is a possibility that this series of price shocks will lead to a more permanent increase in inflation, as we have seen with a number of shocks during the pandemic, with this economic shock coming on the back of an increase in prices in import tariffs,” he said.
