Federal Reserve Governor Christopher Waller stated on Tuesday that the central bank must honor its commitments to further interest rate hikes, or risk undermining its credibility, and indicated that a larger-than-usual half‑percentage‑point increase could be appropriate in December.
Speaking in London, the policymaker said he is leaning toward a December rate increase even if October inflation data come in softer than expected, and would support more aggressive action should the figures exceed forecasts.
“In that case, I believe a 50‑basis‑point hike in the policy rate should be considered at the December meeting,” he said. “A 25‑basis‑point increase would jeopardize our credibility, a risk I am keen to avoid.”
Waller noted that Fed communications before and at the October meeting have already prompted markets to price in further rate hikes.
He emphasized that implementing the hikes — regardless of whether they occur consecutively or intermittently — is essential.
“When our communication is clear and credible, what truly matters is that the hikes are eventually implemented — there is no need to raise rates at consecutive meetings,” he said. “If the hikes are not carried out, market expectations will fall and rates will decline, loosening monetary policy in an undesirable manner.”
Waller added that higher rates will be required sooner rather than later.
“So, while the exact timing of the hikes is less important, ensuring that the promised hikes are implemented within a reasonable timeframe is essential,” he said.
In its decision to forgo an October hike, the Federal Open Market Committee said that “the accumulation of additional information” will guide the appropriate policy path to bring inflation down. The decision was not unanimous; Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented.
The Bureau of Labor Statistics will release the October consumer price index reading on Tuesday, one of the final inflation reports before the central bank’s next policy meeting on December 8‑9.
Since the October decision, several Fed officials have continued to counsel patience while stressing the need to bring inflation back to the central bank’s 2% target.
Markets are pricing in a greater than 80% probability of a December quarter‑point hike but see no chance of a half‑point increase, according to the CME Group’s FedWatch.
Chicago Fed President Austan Goolsbee said on Monday that the Fed must avoid letting the economy become overheated, noting that “once it gets overheated, it is extremely painful to unwind that kind of overheating.”
In his remarks, Waller described the economy as growing at a healthy pace, with a labor market that has remained solid — if not highly dynamic — within the present low‑hire, low‑demand environment.