Fed Governor Waller Backs December Rate Hike, Signals Openness to 50-Basis-Point Move

Federal Reserve Governor Christopher Waller expressed support for another 25-basis-point interest rate increase in December, cautioning that a larger 50-basis-point hike should be considered if October inflation remains elevated. Speaking at the Bank of England Watchers Conference in London on Tuesday, ahead of the U.S. CPI release, Waller said he would still back a December rate hike even if inflation showed improvement from September’s levels. However, if core CPI climbs by roughly 0.3% month-over-month or more, consistent with 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 steady 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 mounting concern about the breadth and persistence of U.S. 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% month-over-month and 3.7% year-over-year, while core PCE increased 0.3% month-over-month and 3.1% year-over-year. More than 70% of core PCE services components recorded annual price gains above 3%, indicating that inflation pressures have spread across a wider range of activities. Waller also cautioned that AI infrastructure investment is 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 energy-related pressures could extend into 2027, even as crude oil prices have recently retreated.

Despite those inflation concerns, Waller characterized the broader U.S. economy as resilient, with third-quarter GDP expanding at a 3.4% annualized pace and October payrolls increasing by 165,000. He viewed the labor market as broadly balanced, although he questioned whether the unusually low rates of hiring and job separations reflect a healthy economy. Describing 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, limit opportunities for younger workers, and eventually constrain productivity growth. Nevertheless, these longer-term uncertainties have not altered 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 decisive in determining whether Waller’s preferred December response remains a conventional 25-basis-point 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.

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