Federal Reserve Governor Christopher Waller signalled support for another 25bps interest rate hike in December, warning that a larger 50bps increase should be considered if October inflation remains elevated. Speaking at the Bank of England Watchers Conference in London on Tuesday, ahead of the US CPI release, Waller said he would still support a December hike even if inflation improved from September’s levels. However, if core CPI rises around 0.3% mom or more, similar to recent readings, he argued that stronger action may be warranted. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” he said. Waller explained that he supported holding rates at the October FOMC meeting because expectations of future tightening had already influenced financial conditions, but warned that failing to deliver those increases could cause market rates to fall and unintentionally loosen policy.
Waller’s hawkish stance reflects growing concern about the breadth and persistence of US inflation, rather than headline price pressures alone. Describing September’s figures as particularly troubling, he said, “September’s inflation data were bad. There was no silver lining.” Headline PCE inflation rose 0.5% mom and 3.7% yoy, while core PCE increased 0.3% mom and 3.1% yoy. More than 70% of core PCE services components recorded annual price increases above 3%, suggesting that inflation pressures have spread across a wider range of activities. Waller also warned that AI infrastructure investment was contributing to higher technology-related costs, while elevated energy prices could feed into core inflation more persistently than previously assumed. He cited Fed research suggesting that energy-related pressures could extend into 2027, even as crude oil prices have recently retreated.
Despite those inflation concerns, Waller described the broader US economy as resilient, with third-quarter GDP expanding 3.4% annualized and October payrolls increasing by 165,000. He viewed the labour market as broadly balanced, although he questioned whether the unusually low rates of hiring and job separations reflected a healthy economy. Characterizing the current environment as “low hire, low fire,” Waller asked, “Does a stable labor market necessarily mean it’s a healthy labor market?” He warned that reduced worker mobility could prolong unemployment spells, hinder opportunities for younger workers and eventually constrain productivity growth. Nevertheless, these longer-term uncertainties have not changed his immediate policy assessment: employment is close to the Fed’s maximum-employment objective, while inflation remains sufficiently elevated to justify further tightening. The October CPI release will therefore be crucial in determining whether Waller’s preferred December response remains a conventional 25bps increase or shifts toward consideration of a larger move.
Key Takeaways
- Fed Governor Christopher Waller supports a 25bps December hike even if inflation improves, but would consider 50bps if core CPI remains around 0.3% mom or higher.
- Inflation pressures are increasingly broad-based, with elevated services prices, AI-related investment costs and persistent energy effects strengthening the case for further tightening.
- Waller views employment as broadly balanced but warns that unusually low hiring and worker turnover could undermine productivity despite stable headline labour-market figures.
