A swift end to the Middle East conflict could pave the way for Federal Reserve interest rate cuts later this year, according to Governor Christopher Waller, offering a conditional path to monetary easing amid high geopolitical uncertainty.
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Fed's Waller leaves door open for 2026 rate cuts if Mideast war ends
Federal Reserve Governor Christopher Waller said Friday that a quick resolution to the Middle East war could allow the central bank to resume cutting interest rates in 2026, even as he projected March inflation would remain high at 3.5 percent.
"If the conflict can be resolved quickly, I expect core inflation to continue to move toward 2 percent," Waller said in prepared remarks for a speech at Auburn University, adding this would support rate cuts later in the year to support the job market.
Waller's conditional optimism contrasts with other Fed officials. Chicago Fed President Austan Goolsbee recently warned that a prolonged period of high oil prices resulting from the conflict could delay rate cuts until 2027. The Fed has held its policy rate in a 3.50% to 3.75% range throughout 2026 after three 25-basis-point cuts in late 2025.
The divergent views underscore the challenge facing the Fed ahead of its April 28-29 policy meeting. Policymakers must balance the risk of re-accelerating inflation, driven by energy shocks, against a potentially slowing labor market, with the path of interest rates hanging on geopolitical outcomes.
A Tale of Two Timelines
Waller acknowledged the severe risks a prolonged conflict poses, noting that sustained high energy prices could fuel broader inflation and slow economic activity. "The longer this goes... the inflation stays up, realistically, I think that starts pushing it out of '26," Goolsbee told AP, articulating the more hawkish scenario.
This split highlights the data-dependent nature of the modern Fed. While Waller is holding out hope for a dovish pivot contingent on de-escalation, Goolsbee's comments suggest a higher bar for easing. Economists recently projected that the Fed's preferred underlying inflation gauge, the core personal consumption expenditures price index, likely rose to 3.2% in March, the largest gain in two years, complicating the path to the central bank's 2 percent target.
What This Means for Savers
For consumers, the Fed's holding pattern creates a valuable, if potentially brief, window of opportunity. While the central bank's policy rate is at 3.50% to 3.75%, savers can find much higher yields.
According to Forbes Advisor, top rates on certificates of deposit (CDs) are as high as 4.94% for a six-month term as of April 16. These rates are significantly higher than the national averages, which hover around 1.75% for a one-year CD. With the Fed signaling that future moves are more likely to be cuts rather than hikes, locking in a high-yield CD now could secure a strong return before rates potentially decline later in 2026 or 2027.
This article is for informational purposes only and does not constitute investment advice.
