- Waller is leaning toward a December hike regardless. Speaking in London on Tuesday, the Fed governor said he “is leaning toward” a rate increase in December even if October inflation data came in softer than expected, and that higher rates “will be needed, sooner rather than later.”
- He put a half-point move on the table. If inflation readings come in higher than forecast, “I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” Waller said, adding: “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”
- His core argument is about credibility. Waller said Fed communications before and at the October meeting led markets to price in more hikes, and if those hikes are not carried out, “rates will immediately fall, which would loosen monetary policy in an undesirable way.”
- Timing is flexible, follow-through is not. “It is not necessary, for example, to raise rates at consecutive meetings,” Waller said, adding that he supported October’s hold so long as the Fed follows through on market expectations for further tightening.
What Happened?
Federal Reserve Governor Christopher Waller laid out his case at a central bank conference hosted by the Bank of England, hours before the October consumer price index was released. In October, the Federal Open Market Committee passed on a hike, saying “the accumulation of more information” would guide the path to lower inflation, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting. Waller described the economy as growing “at a healthy pace” with a labor market that “has also been solid” amid a low-hire, low-fire climate. Before his speech, markets priced a better than 80% chance of a quarter-point December hike and no chance of a half point, according to CME Group’s FedWatch.
Why It Matters?
Waller’s framing raises the bar for the Fed to stand pat: in his view, failing to deliver tightening that markets already expect would itself be an easing of policy. That puts pressure on colleagues who have counseled patience since October, such as Chicago Fed President Austan Goolsbee, who warned Monday that once the economy “gets overheated, it’s extremely painful to get rid of that kind of overheating.” By explicitly tying a 50 basis point move to the inflation data, Waller turned Tuesday’s CPI report into a direct test of the size of December’s hike. The October CPI came in at 0.4%, above the 0.3% forecast, CNBC reported.
What’s Next?
The Fed meets Dec. 8-9, and investors will watch whether other policymakers echo Waller’s credibility argument or push back on a larger hike. After the hot CPI, traders fully priced a quarter-point increase and lifted the odds of a half-point move to 13.6%, per FedWatch data cited by CNBC. Further Fed speeches and Friday’s wholesale inflation data will shape whether the half-point camp gains ground.
