US Fed's Waller Expects More Rate Hikes as Inflation Stays High
US Fed Governor Christopher Waller warns of more interest rate hikes as inflation remains stubbornly above the 2 per cent target.
United States Federal Reserve Governor Christopher Waller has signaled that the central bank is likely to implement further interest rate hikes in the coming months. This move comes as inflation remains stubbornly above the Federal Reserve's preferred 2 per cent target, despite previous efforts to cool the economy.
Speaking at the Istanbul Economic Forum in Türkiye on Thursday, Waller noted that while the timing and speed of these increases will depend heavily on incoming economic data, the necessity for tighter monetary policy remains a priority to ensure a timely return to price stability.
A Resilient Economy vs. Persistent Inflation
Waller expressed confidence in the strength of the American economy, suggesting it possesses enough resilience to withstand a tighter monetary environment. He emphasized that the decision to resume raising rates was not based on a single piece of data, but rather a "preponderance of evidence" gathered over several months.
"If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2 percent goal," Waller stated. However, he clarified that these hikes do not necessarily have to occur at every single policy meeting, provided they are implemented within an acceptable timeframe.
Key Drivers of Inflationary Pressure
The Governor identified several complex factors that continue to push prices upward, complicating the Federal Reserve's mandate:
- Energy Costs: Ongoing conflicts in the Middle East have contributed to high energy prices. Waller warned that damaged infrastructure and low inventories could keep oil prices elevated through 2027.
- Artificial Intelligence Expansion: In a notable observation, Waller highlighted that the massive buildout of AI infrastructure is significantly driving up high-tech consumer prices.
- Labor Market Strength: A stable and strengthened labor market continues to provide a cushion for the economy but also contributes to persistent inflationary forces.
- Trade Uncertainties: Ongoing trade conflicts and the potential for additional tariffs remain significant risks that could exert renewed upward pressure on inflation.
The Path Ahead for Interest Rates
The Federal Open Market Committee (FOMC) recently raised the benchmark interest rate by 25 basis points in September, bringing the range to 3.75-4 per cent. This ended a nine-month period where rates had remained unchanged.
Looking forward, the outlook for tightening appears strong. According to the Fed's September economic projections, 16 out of 18 policymakers expect at least one more interest rate hike during the remaining two meetings of 2026. Furthermore, financial markets are already reacting to this sentiment, with futures indicating an 85 per cent probability of at least one rate hike by the December meeting.
Despite the tightening, Waller remains optimistic about economic growth. He stated he is not "greatly concerned" that tighter policy will trigger a damaging slowdown, pointing toward signs of strengthening economic activity expected in the second half of 2026.
"Overall, the new data reinforce my view that the labor market is stable and inflation is too high. For at least the near term, policy will be focused on the inflation side of our mandate," Waller concluded.