Fed's Waller backs December rate hike, flags possible half-point rise
Fed Governor Christopher Waller said on Tuesday he would support at least a quarter-point rate hike in December even if October inflation data shows a cooling, and would consider a half-point increase if core prices rise 0.3 per cent or more. He stressed the need to maintain the Fed's credibility on
Federal Reserve Governor Christopher Waller said on Tuesday he would support raising short-term borrowing costs at the December meeting of the Federal Open Market Committee, even if upcoming data shows inflation eased in October. He also flagged the possibility of a larger half-point hike if the inflation picture worsens.
“While I am hoping for an improvement over September, even if this occurs, I would still support a 25 basis point increase in the FOMC’s policy rate at our December meeting,” Waller said in remarks prepared for delivery in London. He was referring to the October reading of the US consumer price index, due for release at 8:30 a.m. EST (1330 GMT). Economists polled by Reuters expect core CPI, which excludes volatile food and energy prices, to have risen a moderate 0.2 per cent from September.
If core consumer prices rise 0.3 per cent or more from September, Waller said “a stronger policy move may be needed. In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting.” Anything less, he argued, risks hurting the Fed’s inflation-fighting credibility, given that inflation remains too high and appears to be broadening.
Waller’s unvarnished assessments contrast sharply with Fed Chair Kevin Warsh’s resistance to offering any rate-path guidance. Waller backed the central bank’s decision last month to skip a rate hike, in part because policymakers had all but promised further tightening. Financial markets reflect those expectations, with futures pricing in about an 85 per cent chance of a rate hike at the Fed’s December 8-9 meeting to a new target range of 4.00 per cent-4.25 per cent, and a better-than-even chance of another hike as soon as March.
“If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way,” Waller said. “So, while the precise timing of the hikes doesn’t matter, ensuring that the promised hikes are implemented in a reasonable period of time does.”
Waller did not mention last week’s midterm elections, which gave Democrats majorities in both chambers of Congress and elected governors who pledged to rein in data-centre expansion. The political shift has driven stock and bond market volatility as investors reprice expectations for artificial intelligence, demand for which drove a double-digit increase in business investment last quarter. US GDP grew at a 3.4 per cent annualised rate last quarter, though Waller expects growth to moderate as consumer spending slows.
The Fed targets 2 per cent year-over-year inflation as measured by the personal consumption expenditures index, but September’s reading was 3.7 per cent, and core PCE inflation rose 3.1 per cent from a year earlier. More than 70 per cent of core PCE services inflation components rose 3 per cent or more in September. Recent Fed staff analyses suggest producer prices could continue to rise, and that energy shocks may now deliver a more persistent push upward to prices than in the pre-pandemic period, possibly persisting well into 2027, Waller said.