Fed’s Waller says larger hike should be considered if October CPI runs hot

Federal Reserve Governor Christopher Waller said Tuesday he would support a 25-basis-point interest rate hike in December even if October inflation improves, and that a larger 50-basis-point move should be considered if price pressures stay strong.

Speaking in London hours before the release of October consumer price index data, Waller said the U.S. economy is growing strongly and the labor market is stable, but inflation remains too high.

“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,” he said. “However, if inflation comes in substantially higher than I expect, more robust action by the FOMC may be called for.”

Waller was blunt about recent inflation readings.

“Let’s just say it. September’s inflation data were bad,” he said.

He noted that the Fed’s preferred inflation gauge rose 3.7% over the past year in September, while the core measure, which strips out food and energy, rose 3.1%. 

He added that he is particularly concerned that price increases have become more widespread, and he warned that AI-related tech costs and high energy prices may not fade soon.

If October core CPI comes in around 0.3% for the month or higher, similar to the previous two readings, Waller said the Fed should consider a 50 basis point hike in December. 

If that were to occur, he believes that “hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” he said.

Waller also explained that he voted to hold rates in October because markets had already priced in future hikes, and that what matters is that those hikes are eventually delivered.