Fed Governor Waller leaves room for hawkishness: More rate hikes are needed to support inflation decline, not necessarily on a monthly basis.

According to Jinse Finance APP, Federal Reserve Governor Christopher Waller said on Thursday that if economic data continues to evolve as expected, he anticipates further rate hikes to help inflation return more promptly to the Fed’s 2% target.

Waller stated in a speech at the Istanbul Economic Forum that there is some flexibility regarding the timing of rate hikes. “Rate hikes don't have to occur at consecutive meetings, but they should be implemented within an acceptable timeframe.”

The Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points to a range of 3.75% to 4% in September, after the rate had remained unchanged for nine consecutive months.

Inflation Remains Above the Fed’s Target

Waller noted that August data showed the core Personal Consumption Expenditures (PCE) price index rose 0.25% month-on-month, with a 3% year-on-year increase over 12 months. “This is clearly above our target and does not show sufficient progress,” he said.

Waller stated that the labor market remains stable while “inflation is excessively high,” adding, “At least in the near term, policy will focus on the inflation side of our mandate.”

Waller said his decision to shift policy stance in September was not based on one month’s inflation data, but reflected the “overall trend of evidence over several months,” including a strengthening labor market and a range of persistent inflationary forces.

The Fed Governor said that stronger economic activity in the second half of the year made him less concerned about monetary tightening causing a damaging slowdown. He also noted concern that a recent acceleration in inflation may lead consumers, investors, and pricing businesses to raise expectations for future inflation.

Highlighting Energy, AI, and Tariffs

Waller said hopes for a swift end to conflict in the Middle East have been dashed, and experts warn that low inventories and damaged infrastructure could keep oil prices elevated through 2027.

The Fed Governor pointed out that there is increasing evidence that “the AI construction boom is significantly driving up prices for high-tech consumer goods,” while ongoing trade disputes may result in new tariffs, once again placing upward pressure on inflation.

Waller said these forces “are overwhelming the fleeting signs of progress toward the 2% inflation target.”

Waller emphasized that the Summary of Economic Projections (SEP) can signal possible directions for monetary policy, but also stressed that “the path of monetary policy is not pre-set” and will depend on subsequent data and its implications for the Fed’s dual mandate.