Fed’s Waller warns inflation may force new hikes, rattling risk assets

Federal Reserve Governor Christopher Waller warned that stubborn inflation and surging energy costs now outweigh labor market risks, signaling that rate hikes are “back on the table” and jolting expectations that had been primed for cuts a few months ago.

In a speech described as “hawkish” by Wall Street Journal economics correspondent Nick Timiraos, Waller argued that “inflation is not headed in the right direction” and that the balance of risks has shifted away from the labor market and toward price stability.

Why is Waller calling for an end to the Fed’s easing bias?

He pointed to April’s 3.8 percent year on year consumer price index reading and a 17.9 percent jump in energy costs, which he tied to Middle East conflicts that have pushed oil above $100 per barrel and filtered into gasoline, transport and production costs across the economy.

On the Fed’s preferred core PCE gauge, which strips out food and energy, Waller noted that inflation has climbed to 3.3 percent, the highest level in more than two years, even as unemployment holds around 4.3 percent and real GDP grows near 2 percent.

“Based on this recent data, I would support removing the ‘easing bias’ language in our policy statement to make it clear that a rate cut is no more likely in the future than a rate increase,” Waller said, in comments relayed by Bloomberg TV’s Annmarie Hordern.

At the same time, he stopped short of demanding an immediate move, with ZeroHedge highlighting his line that he does not think the Fed “should consider hikes in the near future,” framing his stance instead as a live threat if inflation refuses to cool.

Timiraos summed up the shift by saying Waller “comes across as quite troubled by recent inflation developments,” and reported that the governor believes markets are still underpricing the risk that higher energy prices will prove more persistent than investors expect.

Earlier this spring, Bitcoin rallied back above $70,000 as a Trump brokered two week ceasefire with Iran and hopes of policy easing sent risk assets surging, a pattern covered when Bitcoin (BTC) steadied while Iran briefly reopened the Strait of Hormuz even as oil markets stayed tight.

More recently, crypto traded in lockstep with Middle East headlines and Fed repricing, with crypto market outlook reports noting how every twist in US Iran tensions and Hormuz blockade threats fed directly into bets on inflation, energy and the path of rates.

At the same time, persistent 3.8 percent headline inflation and 3.3 percent core PCE also reinforce the long running narrative of Bitcoin as an alternative hedge against US policy slippage, a theme that resurfaced when Bitcoin reclaimed $70,000 on ceasefire relief even as bond markets priced in a more volatile rate path.