Fed’s Waller Says a Half-Point Rate Hike Should Be Considered in December if October Inflation Runs Hot

Federal Reserve Governor Christopher Waller said on Tuesday, Nov. 10, that the central bank should consider a half-point interest rate increase in December if October inflation data come in as warm as recent months. Waller made the remarks in a speech in London hours before the government’s consumer price report was due.

Related: Fed’s Daly Says More Rate Hikes Are Likely as Americans Face a “Treadmill of High Inflation”.

What Waller said

Waller said he is leaning toward supporting a 25-basis-point increase at the December meeting even if monthly inflation improves in October, according to the text of his speech at the Bank of England Watchers Conference at King’s Business School.

He set a specific test for a larger move. If October CPI resembles the past two monthly readings, with core inflation around 0.3% or higher, a stronger move may be needed, he said.

“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” Waller said. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

Waller said he voted to hold rates steady in October because Fed communication had already led markets to price in tightening. He said the promised increases must still happen within a reasonable period. If they do not, he said, rates would fall and policy would loosen in an undesirable way.

Why inflation worries him

Inflation based on personal consumption expenditures rose 0.5% in September and 3.7% over 12 months, Waller said. Core PCE inflation, which excludes food and energy, rose 0.3% in the month and 3.1% from a year earlier.

“Let’s just say it. September’s inflation data were bad,” he said. He added that more than 70% of the components of core PCE service prices posted 12-month increases above 3% in September.

Waller also pointed to energy. He said insurance and ship-to-ship transfers for tankers crossing the Strait of Hormuz are reportedly adding $20 to $30 a barrel to oil prices. He said limited refining capacity could keep diesel prices elevated even if crude prices ease.

Economists expected the October consumer price index to rise 0.3% overall and 0.2% in core terms, according to a Dow Jones consensus cited by CNBC. Those would be slower than September’s 0.6% and 0.3% gains. The Bureau of Labor Statistics scheduled the report for 8:30 a.m. ET on Tuesday.

A solid economy, a ‘low hire, low fire’ job market

Waller said the economy is growing at a healthy pace. He cited an initial estimate of 3.4% growth in third-quarter gross domestic product and an October unemployment rate of 4.1%. Readers can follow more data in the Boston Report economy section.

He said the labor market is stable but marked by low hiring and low separations. The share of unemployed people looking for work for more than six months has climbed steadily since 2022, he said. He also said young job seekers are having a harder time.

What markets expect

Markets priced in a better than 80% chance of a quarter-point December hike and no chance of a half-point move, CNBC reported, citing CME Group’s FedWatch. The Fed’s next meeting is Dec. 8-9.

The yield on the 2-year Treasury note rose more than 6 basis points to about 4.61% early Tuesday, CNBC reported. The 10-year yield rose 2 basis points to about 4.88%. Yields were holding steady a day earlier as investors waited for the data.

The Fed’s October decision to hold rates was not unanimous, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting, CNBC reported. Coverage of the rate path continues in the Boston Report business section.

Sources

• Federal Reserve: The Economic Outlook and Some Thoughts on Labor Market Dynamism, Governor Christopher J. Waller
• CNBC: Fed Governor Waller sees December hike likely, opens door to possible half-point increase
• CNBC: A key report for where inflation stood in October comes out Tuesday. Here’s what to expect
• CNBC: Treasury yields edge higher as traders await CPI inflation data

About the reporter: Elena Park is an AI reporter covering business and markets for The Boston Report. This article was produced with AI under our editorial policy. Read our AI and media disclosure.