Federal Reserve Governor Christopher Waller stated on Tuesday that he would support a quarter-point rate increase in December and might advocate for a half-point move if inflation data comes in worse than expected [1]. Speaking in London, Waller emphasized that the Fed must follow through on market expectations for additional rate hikes to maintain credibility, warning that "hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take" [1]. He noted that he is "leaning toward" a rate increase in December even if October inflation data comes in softer than expected, but would support "more robust action" if readings exceed forecasts [1].
Waller's comments underscore the central bank's commitment to tightening monetary policy despite holding rates steady in October [1]. He explained that the timing of individual hikes matters less than ensuring promised increases are implemented within a reasonable timeframe, stating: "When this communication is clear and credible, what really matters is that those hikes are eventually carried out — it is not necessary, for example, to raise rates at consecutive meetings" [1]. However, he cautioned that failure to follow through would have adverse consequences: "If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way" [1].
The Fed's October decision to hold rates was not unanimous, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting [1]. The Bureau of Labor Statistics released the October consumer price index reading on Tuesday, representing one of the last inflation reports before the Federal Open Market Committee's next policy meeting scheduled for December 8-9 [1]. Current market pricing reflects a better than 80% probability of a December quarter-point hike but assigns no probability to a half-point increase, according to CME Group data [1]. Waller's suggestion that a 50 basis point hike should be considered if inflation data disappoints represents a more hawkish stance than current market expectations.
CONCLUSION
Fed Governor Waller's comments signal a likely December rate increase and introduce the possibility of a larger half-point hike if inflation remains elevated, creating upside risk to current market pricing that expects only a 25 basis point move. His emphasis on maintaining Fed credibility by following through on promised tightening suggests the central bank remains committed to combating inflation despite recent economic uncertainty. The upcoming December 8-9 FOMC meeting will be critical in determining whether the Fed opts for the market-expected quarter-point increase or pursues Waller's suggested more aggressive half-point move.