“Outlook for the U.S. Economy and Monetary Policy”

As part of its Central Bank Speaker Series, the Frankfurt School Centre for Central Banking (CfCB) welcomed Christopher Waller, Member of the Board of Governors of the Federal Reserve System, for a guest lecture on 22 May 2026. Jens Weidmann, Professor of Practice in Central Banking and Co-Director of the Centre, introduced Waller and placed the lecture in the context of a highly uncertain global environment in which monetary policy decisions reverberate across economies, financial markets and expectations.

In his lecture “Outlook for the U.S. Economy and Monetary Policy”, Waller examined how the Federal Reserve is assessing the outlook for inflation, economic activity and the labour market amid renewed price pressures linked to the conflict in the Middle East. He explained that higher energy and commodity prices have shifted the policy debate, making inflation the central factor in his current assessment of the appropriate monetary policy stance.

“I am prepared to be patient in holding policy at its current restrictive setting as we watch how the conflict evolves and what impact there is on inflation and inflation expectations. If I believe inflation expectations start to become unanchored, I would not hesitate to support an increase in the target rate in the federal funds rate.”

Christopher Waller, Member of the Board of Governors of the Federal Reserve System

Waller noted that the US economy continues to grow at a solid pace, supported by resilient consumer spending and strong investment linked to artificial intelligence. At the same time, he cautioned that household saving has declined and that higher prices are weighing on consumer sentiment. The labour market, he argued, appears to have stabilised, with unemployment close to its longer-run level and job creation consistent with slower labour force growth.

The more pressing concern, Waller said, is inflation. While central banks can often look through individual price shocks, he stressed that a sequence of positive shocks may change how households, investors and businesses form expectations. Drawing on Bayesian updating, he explained how repeated transitory shocks can still lead people to expect higher inflation in the future, increasing the risk that inflation becomes more persistent.

Against this backdrop, Waller argued that the Federal Open Market Committee should remain data-dependent. He said he would not support a change in the policy rate in the near term, but also made clear that the next move could be either a cut or a hike depending on incoming data. A marked improvement in inflation or significant deterioration in the labour market would be needed before he would consider reducing rates.

The lecture concluded with a discussion moderated by Emanuel Mönch, Professor of Financial and Monetary Economics and CfCB Co-Director. The event once again demonstrated the Centre for Central Banking’s role as a leading forum connecting academia, policymakers and the financial sector.