Fed’s Waller Backs a December Rate Hike, Floats a Half-Point Move if Inflation Stays Hot

Federal Reserve Governor Christopher Waller said Tuesday he would support raising interest rates by a quarter point in December even if inflation improved in October, and that a half-point hike should be considered if it didn’t.

Waller laid out the case in a speech at the Bank of England Watchers Conference at King’s Business School in London, hours before the Labor Department’s Bureau of Labor Statistics was set to release the October consumer price index at 8:30 a.m. Eastern.

“Inconveniently for today’s event, we will get consumer price index (CPI) inflation for October in a few hours,” he said.

“While I am hoping for an improvement over September, even if this occurs, I would still support a 25 basis point increase in the FOMC’s policy rate at our December meeting.”

He drew a line at a specific number. If core CPI, which strips out food and energy, rises around 0.3% or more for the month, matching the past two readings, Waller said “a stronger policy move may be needed.”

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

Markets Already Expect a Hike

Futures tied to the Fed’s policy rate priced in about an 85% chance of a hike at the Dec. 8-9 meeting as of Monday’s close, Reuters reported.

That would lift the target range to 4.00% to 4.25%, and traders saw a better-than-even chance of another increase as soon as March.

Economists polled by the news agency expect core consumer prices rose a more moderate 0.2% in October from September.

Markets were pricing a better than 80% chance of a quarter-point move but no chance of a half point, CNBC reported, citing the CME Group’s FedWatch tool.

Bloomberg Law called Waller’s remarks the strongest argument yet from a Fed official that the central bank may need to go bigger than markets expect.

Waller said he backed the Fed’s decision to hold rates steady in October because officials had already signaled tightening was coming, and markets had priced it in.

The October decision drew dissents from Governor Lisa Cook and Cleveland Fed President Beth Hammack.

“So, while the precise timing of the hikes doesn’t matter, ensuring that the promised hikes are implemented in a reasonable period of time does,” Waller said. If the hikes aren’t carried out, he warned, rates would fall and “loosen monetary policy in an undesirable way.”

He described an economy that is “growing strongly, with a labor market that has brought employment close to its long-term rate,” but said inflation “remains too high” and further tightening will be needed “sooner rather than later.”

Waller’s blunt guidance stands in contrast to Fed Chair Kevin Warsh, who has resisted offering any guidance on the path of rates. The dollar steadied after the remarks, Channel NewsAsia reported, as traders waited on the inflation numbers.

For households, a December hike would push borrowing costs higher on credit cards, home equity lines and other loans tied to short-term rates heading into the holidays.

Content created by Conservative Daily News and some content syndicated through CDN is available for re-publication without charge under the Creative Commons license. Visit our syndication page for details and requirements.