Fed Governor Says Iran War Causing More Uncertainty Than Tariffs

• Consumer Price Index rose 0.6% in April, driven by 3.8% energy price increases, with food prices up 0.7%, apparel 0.6%, and services excluding energy 0.5%
• The U.S. economy continues growing at 2% despite inflation, supported by strong AI-related business investment, though consumer savings have fallen to a four-year low of 3.6%
• Roughly half of all monitored goods and services categories saw price increases of 3% or higher this year, representing a historically large share of inflationary pressure

Summary

Federal Reserve Governor Christopher Waller stated on May 22, 2026, that interest rates should remain steady in the near term, citing persistent inflationary pressures and heightened uncertainty from the Middle East conflict with Iran—which he views as creating more uncertainty than tariffs.

Key Policy Position:

Waller indicated he would need to see either significant improvement in inflation or substantial labor market deterioration before considering rate cuts. Despite inflationary concerns, the U.S. economy continues growing at a solid 2% pace, supported by robust AI-related business investment and resilient consumer spending.

Inflation Data:

• Consumer Price Index (CPI) rose 0.6% in April, with energy prices up 3.8%
• Core categories showed concerning increases: food up 0.7%, apparel 0.6%, and services excluding energy up 0.5%
• Approximately half of monitored goods and services categories increased 3% or higher annually—described as "historically large"
• Personal savings rate fell to a four-year low of 3.6%

Market Implications:

Waller emphasized that inflation's trajectory depends on the Middle East conflict's duration, supply chain disruptions, and how input costs affect final prices. Despite record-low unemployment, consumer financial stress is mounting, particularly related to grocery costs. Research shows 90% of consumers cited grocery-related financial stress in early 2026, up from 84% in October, with inflation evolving from a temporary issue into a persistent cash flow challenge for households.

The geopolitical uncertainty and broadening price pressures suggest a prolonged higher-rate environment ahead.