Fed's Waller opens door to half-point rate hike in December

Federal Reserve Governor Christopher Waller advocated for a 25-basis-point interest rate increase in December, even if October's consumer price index shows improvement. Waller also suggested a potential 50-basis-point hike if price pressures remain high. Speaking in London prior to October's CPI data release, Waller emphasized that the U.S. economy is strong and the labor market stable, but inflation remains a concern.

While hoping for a September inflation decrease, Waller affirmed his support for a 25 basis point rate hike in December if inflation remains elevated. However, Waller cautioned that if inflation significantly surpasses expectations, a more substantial action by the Federal Open Market Committee may be necessary. Waller criticized September's inflation data, noting a 3.7% increase in the Fed's preferred gauge and a 3.1% rise in the core measure, which excludes food and energy.

He expressed particular concern over the widespread nature of price increases, attributing them to AI-related technology costs and high energy prices. Waller believes that a 25-basis-point hike would compromise the Fed's credibility, a risk he is unwilling to take. Waller explained his October vote to maintain current rates due to markets already pricing in future hikes, stressing the importance of ultimately delivering those hikes.