Fed's Waller puts half-point rate hike into the mix for December

By Steve Goldstein

Fed Gov. Christopher Waller said a half-point rate hike may be needed.

Federal Reserve Gov. Chris Waller has raised the possibility of a half-point rate hike - and October's inflation data came in at the threshold he cited for more aggressive action.

At a London event Tuesday morning, Waller said that if core CPI comes in at 0.3% or stronger, he would recommend supporting a half-point rate hike.

Core CPI did grow 0.3% in October, according to data released by the Labor Department on Tuesday.

In a subsequent question-and-answer session, he said a 0.3% or stronger core reading would imply that inflation would be moving further from, rather than closer to, the Fed's 2% inflation target.

He said he was particularly concerned about the breadth of price increases.

Markets are now starting to take the idea of a half-point increase seriously. According to LSEG, there's now a 12% chance of an increase in rates to a range between 4.25% to 4.5%, versus none ahead of the data.

The yield on the 2-year Treasury BX:TMUBMUSD02Y, which started to move higher after Waller's remarks, now is 12 basis points on the day.

He added the Fed may have to shift its reliance on looking at core prices if energy prices are still elevated.

Waller notably talked about the message being sent by the Fed's "dot plot" - in which Chairman Kevin Warsh does not participate. "The markets use that information to do pricing of rate hikes," he said. "I'm not changing anything I do or say."

Waller was also asked about the plan to reduce the number of vote-setting rate meetings. He said, on occasion, there would be times when a slower schedule would have been helpful, citing as one example a Federal Open Market Committee meeting just days after SVB and Credit Suisse failed.

The most shocking thing, he said, is the strength of the U.S. consumer, through various shocks like tariffs and war. He credited both a tight labor market and asset-pricing strength for the willingness of U.S. consumers to spend.

-Steve Goldstein

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11-10-26 0841ET