Federal Reserve Governor Christopher Waller said Thursday that the central bank may need additional interest rate hikes. This is necessary to bring inflation back down to its 2% goal. At the same time, he emphasized flexibility over the timing of these moves as economic conditions evolve.
Speaking at the Central Bank of the Republic of Türkiye İstanbul Economic Forum, Waller stated that the latest economic data continues to show inflation remaining too high. Meanwhile, the nation’s labor market maintains a solid and stable footing.
“If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal,” Waller said during his address.
Shifting Focus to Persistent Inflation Pressures
Waller explained that his recent pivot toward tightening monetary policy stems from a combination of persistent inflationary forces that developed over the past year. Earlier, the Federal Open Market Committee (FOMC) had cut rates by a combined 75 basis points across its final three meetings. This acted as insurance against a weakening labor market.
However, after holding rates steady through the spring and summer, the central bank raised its benchmark policy rate by 25 basis points in September. This set the target range to 3.75% to 4%. Waller noted that core PCE inflation sat at 3% in August. , 12-month core readings have consistently hovered between 2.5% and 3% since the spring of 2024, which is well above the Fed’s mandated 2% target.
He pointed to several factors undermining progress toward price stability. These include prolonged conflicts in the Middle East that risk keeping oil prices elevated, higher high-tech consumer prices driven by the artificial intelligence buildout, and potential trade conflicts threatening new tariffs.
Flexibility in the Pace of Future Rate Adjustments
Addressing the timeline for potential adjustments, Waller clarified that further increases do not need to happen at consecutive meetings. Instead, officials should implement them within a reasonable period. This approach prevents consumers, investors, and price-setting businesses from revising up their long-term inflation expectations.
“There is some flexibility about when those hikes will occur,” Waller noted. “The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time.”
Waller also discussed central bank communication strategies. He advocated for an intermediate approach where policymakers signal an expected path over a defined window. This avoids rigidly locking into a strict numerical pace or a final destination. Data from the Fed’s latest Summary of Economic Projections and federal funds futures indicate that financial markets are actively pricing in additional tightening before the end of the year.
