Federal Reserve Governor Christopher Waller said Friday he was planning to vote against the central bank’s decision to hold rates steady this week after February’s jobs report showed 92,000 payroll losses.

“I thought that’s it, I’m dissenting,” Waller told CNBC’s Squawk Box. But the closure of the Strait of Hormuz and surging crude prices convinced him otherwise.

Brent crude traded around $107 Friday morning, up roughly 55% from pre-war levels near $68. The United States Oil Fund ( USO ) , which tracks WTI crude futures, has surged since the conflict began Feb. 28.

The Fed Cannot ‘Look Through’ This Oil Shock

Waller drew a line between temporary price disruptions and what the Iran war is producing. A “high and persistent” oil shock would not have a transitory impact on inflation, he said, meaning the Fed cannot dismiss it the way it dismissed post-pandemic supply chain noise.

The FOMC voted 11-1 Wednesday to hold the federal funds rate at 3.5%-3.75%. Waller had dissented at the January meeting in favor of a cut. This time he voted with the majority. Updated projections show officials now expect inflation to hit 2.7% by year-end, up from 2.4% in December.

The SPDR S&P 500 ETF Trust fell 1.36% Wednesday as Fed Chair Jerome Powell elevated inflation concerns during his press conference. The Dow dropped 768 points to its lowest level of the year.

Prediction Markets Have Already Repriced The Rate Path

Polymarket’s “How many Fed rate cuts in 2026?” contract tells the story. Zero cuts sat at 9% before the war began. It’s now the frontrunner at 31%, on $11.5 million in volume.

Before the war, traders had been pricing two to three cuts.

The ceasefire timeline may determine whether Waller gets his cuts. Polymarket’s US-Iran ceasefire contract gives a 54% chance of a deal by June 30 and 71% by December 31, on $23.5 million in total volume.

One complication: the more energy infrastructure is damaged during the war, the longer it may take prices to normalize even after a ceasefire.

Waller Left The Door Open

“It doesn’t mean that I’m going to stay put for the rest of the year,” Waller said. “If things go reasonably well, and the labor market continues to be weak, I would start advocating again for cutting the policy rate later this year.”

That makes the next few months a bet on how long oil stays elevated. If the conflict resolves and Brent drops back toward the EIA’s Q3 forecast of sub-$80, the rate-cut trade may reopen. Polymarket bettors aren’t holding their breath.

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