Fed Governor Waller Signals Support for December Rate Increase, Including Possible Half-Point Move

Federal Reserve Governor Christopher Waller said Tuesday he is leaning toward supporting a rate increase at the December meeting and would consider a 50 basis point hike if inflation readings come in higher than forecast.

Waller's Remarks

Waller, speaking in London, said he would support a 25 basis point increase in the FOMC's policy rate at the December meeting even if October inflation data shows improvement. He added that if core consumer prices rise 0.3% or more from September, "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," he said. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take."

Waller said Fed communications prior to and at the October meeting led markets to price in additional rate hikes, and that following through is important. "When this communication is clear and credible, what really matters is that those hikes are eventually carried out — it is not necessary, for example, to raise rates at consecutive meetings," he said. "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."

Economic Context

Waller characterized the economy as growing "at a healthy pace" with a labor market that "has also been solid." He said inflation is too high and "the focus of my attention." The Fed targets 2% year-over-year inflation as measured by the personal consumption expenditures index, but September's reading was 3.7%, and core PCE inflation rose 3.1% from a year earlier.

The Bureau of Labor Statistics was set to release the October reading on the consumer price index on Tuesday, one of the last inflation reports before the central bank's next policy meeting on Dec. 8-9. Markets were pricing in a better than 80% chance of a December quarter-point hike but no chance of a half point, according to the CME Group's FedWatch. The rate-setting Federal Open Market Committee's October decision to hold was not unanimous — Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented.

Why it matters

Waller's comments signal that the Federal Reserve remains committed to further tightening to bring inflation back to its 2% target, with the possibility of an outsized half-point increase in December depending on incoming inflation data.

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Sources

• cnbc.com: Fed Governor Waller sees December hike likely
• investing.com: Fed’s Waller plans to support at least a quarter-point rate hike in December By Reuters
• fxstreet.com: British Pound turns upside down against USD as Fed’s Waller warns of bigger rate hike

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.