Fed Governor Waller Urges Caution, Not Premature Rate Hikes, as Inflation Remains Sticky

Federal Reserve Governor Christopher Waller warned that policymakers should avoid repeating past errors while confronting persistent inflation, emphasizing the need for additional data before deciding on further interest‑rate moves.

Speaking in New York, Waller noted that inflationary pressures now stem from sources beyond the typical energy price spikes and tariffs, pointing to factors such as artificial‑intelligence‑driven demand as contributors to price growth that remains above the Fed’s 2 percent target.

He cautioned, “The desire to avoid past mistakes can itself create new ones.” Recalling the Fed’s delayed response to the high inflation of 2021, Waller said he is determined not to repeat that lag.

However, he stressed that this does not automatically translate into immediate rate hikes. While there is “a credible case for inflation to begin to fall back,” an “equally plausible” scenario exists in which price pressures stay elevated or rise, potentially requiring tighter monetary policy in the near term.

Waller highlighted several underlying drivers of inflation: the 2025 tariffs, rising energy costs linked to Middle‑East conflicts, and demand spillovers from artificial‑intelligence applications. He reiterated the importance of avoiding “fighting the last war” by reacting too quickly, yet also warned against the complacency that can arise from anchored inflation expectations.

“I often hear people say that because inflation expectations are anchored, central bankers do not have to respond to above‑target inflation. This view is wrong,” he said. “Staring at inflation until it melts under our gaze is not an option.”

His comments come ahead of the Bureau of Labor Statistics’ release of the June consumer‑price index. Economists expect the headline CPI to dip 0.2 percent on the month, driven by lower oil prices, while core CPI may rise 0.2 percent, leaving annual headline inflation near 3.8 percent and core inflation around 2.8 percent.

Waller added, “I would be very pleased to see a lower reading on core inflation, but after its escalation over the first half of this year, I will need several months of lower readings to feel that inflation is moving in the right direction. For the reasons I have laid out today, that is still a reasonable outcome, and I would then continue to hold the policy rate at its current target range.”

The Fed is scheduled to meet again in late July, with markets assigning roughly a 39 percent probability to another rate increase, according to CME Group data.

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