Fed Governor Waller strikes a hawkish tone while leaving room: inflation decline needs more rate hike support, no need to move every month.

Federal Reserve Governor Christopher Waller said Thursday that he expects further rate hikes if economic data continue to evolve as anticipated, in order to support a more timely decline in inflation toward the Fed's 2% target. Speaking at the Istanbul Economic Forum, Waller said there is some flexibility on the timing of rate increases. "Rate hikes do not have to occur at consecutive meetings, but they should be in place within an acceptable timeframe." The Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points to a range of 3.75% to 4% in September, after the rate had been held steady for nine consecutive months. Inflation remains above the Fed's target Waller said August data showed the core Personal Consumption Expenditures (PCE) price index rose 0.25% month over month, with a 12-month year-over-year increase of 3%. "This is clearly above our target and does not show sufficient progress," he said. Waller said the labor market remains stable while "inflation is too high," adding that "at least in the near term, policy will focus on the inflation side of our mandate." Waller said his decision to shift policy stance in September was not based on a single month of inflation data, but reflected "the cumulative weight of evidence over several months," including a strengthening labor market and a series of persistent inflationary forces. The Fed governor said stronger economic activity in the second half of the year had made him less concerned that restrictive monetary policy would cause a disruptive slowdown. He also said he worries that the recent acceleration in inflation could lead consumers, investors and pricing firms to raise their expectations for future inflation. Calling out energy, AI and tariffs Waller said hopes for a rapid end to the Middle East conflict have been dashed, while experts warn that low inventories and damaged infrastructure could keep oil prices elevated until 2027. The Fed governor pointed to growing evidence that "the AI construction boom is significantly pushing up prices of high-tech consumer goods," while ongoing trade conflicts could spawn new tariffs, once again posing upward pressure on inflation. Waller said these forces "are drowning out fleeting signs of progress toward the 2% inflation target." Waller said the Summary of Economic Projections (SEP) can provide signals about the likely direction of monetary policy, but he also stressed that "the path of monetary policy is not preset" and will depend on incoming data and their implications for the Fed's dual mandate.