Just caught Waller's latest remarks and there's something worth paying attention to here. His first major economic assessment since late February just dropped, and the message is pretty clear: don't expect fed rate cuts unless inflation takes a serious nosedive.

Here's what jumped out. The Fed's now convinced that soft employment data isn't actually the threat they thought it was. Why? Immigration policy shifts have basically reset their labor market expectations. Net migration tanked from 2.3 million in 2024 to minimal levels in 2025, which means fewer new workers are actually needed to maintain employment. So those three rate cuts we saw at the end of last year? Probably not happening again under current conditions.

The real wildcard is energy prices and the Middle East situation. Waller laid out two scenarios. In the optimistic one, the Strait of Hormuz reopens smoothly, oil prices normalize toward $82 by end-2026, and inflation stays anchored. Energy-driven price spikes would be temporary, and that could actually support spending and hiring. Best-case scenario for markets.

But here's the catch. If the conflict drags on and energy stays expensive, businesses pass those costs forward. Supply chain bottlenecks emerge. Fertilizers, helium, commodities from the region get pricier. Production slows. We're looking at broad inflation spreading, not just a temporary energy spike. Waller was pretty direct about this risk—he's not complacent.

So what does this mean for fed rate cut expectations? Waller basically said if normalization happens quickly and energy prices reverse, he could see easing later this year to support employment. But if the Strait stays closed and inflation keeps climbing, the Fed holds steady. They're watching inflation expectations closely now. Slowing economic activity might eventually temper price gains, but policymakers would still expect higher inflation sticking around longer, alongside a weaker job market.

Bottom line: the Fed's moved from thinking about rate cuts to thinking about holding. The next move depends entirely on whether we get real peace and energy price normalization. If that happens in the next few weeks, risk assets could pop. If not, we're probably looking at rates staying put through 2026. Worth monitoring closely.