Federal Reserve Governor Christopher Waller said policymakers should not respond to current inflation by reflexively repeating the playbook they wish they had used in 2021, though he also said a near-term return to tighter policy remains possible if inflation stays elevated or moves higher.
According to CNBC, Waller made the remarks in a speech in New York on July 13, 2026, Taipei time. He said the Fed is weighing two risks at once: avoiding a repeat of its slow response to inflation in 2021, while also avoiding unnecessary economic tightening driven by excessive anxiety.
Waller warns against fighting the last war
Waller said the Fed was too slow to react to high inflation in 2021, but warned that the desire to avoid past mistakes can create new ones. He urged policymakers not to “fight the last war,” meaning they should not move straight to raising rates simply because they were late before.
Still, he did not rule out tighter policy. Waller said there are “credible reasons” to think inflation will come down, adding that the labor market remains strong and is not the main source of inflation, while inflation expectations are still well anchored. But he also said an equally reasonable scenario is that inflation remains high or rises further. If that happens, the Fed could be forced to restart tighter monetary policy in the near term.
AI demand spillovers named as a new inflation driver
In discussing the causes of current inflation, Waller pointed to a new factor beyond the usual ones. Alongside 2025 tariff policy and energy price increases linked to geopolitical conflict in the Middle East, he highlighted demand spillovers from artificial intelligence.
He said the explosive growth of the AI sector and its infrastructure needs are becoming a new root cause of inflation staying stubbornly above the Fed’s 2% target. The comment links the ongoing capital spending surge tied to AI more directly to inflation pressures in the real economy.
June CPI and July meeting now in focus
On the next policy steps, Waller said the Fed cannot afford to be complacent and that “just watching inflation until it melts” is not a workable approach. Ahead of the U.S. Bureau of Labor Statistics’ June Consumer Price Index release, economists were broadly expecting headline CPI to decline 0.2% month over month as lower oil prices feed through, with the annual rate easing to 3.8%. Core CPI was expected to edge down to 2.8% year over year.
Waller said he would welcome lower core inflation, but after inflation picked up in the first half of the year, he wants to see “several months” of good data before concluding that inflation is moving in the right direction. Until then, he said he leans toward keeping the current target range unchanged.
Markets are still watching the risk of renewed tightening. CME Group FedWatch data showed that, as of Taipei time on July 13, traders were assigning roughly a 39% probability to a rate hike at the Fed’s late-July meeting.