Federal Reserve Governor Christopher Waller said the Fed’s September rate hike came after months of accumulating evidence, not because of any single release.
Waller lays out the case behind the September move
In remarks published on Oct. 8, Waller said the Fed had cut rates by 75 basis points from September through December 2025. He said the picture changed in the first half of 2026, when the labor market stabilized and progress on inflation stalled. He also cited higher energy prices linked to conflict in the Middle East, rising technology consumer prices tied to AI buildout, and added upward pressure from trade tensions and new tariffs.
After August inflation came in above expectations, the Fed decided to raise rates in September. Waller said the latest figures strengthened the view that employment is stable while inflation remains too high.
Core inflation remains above target
Waller said core PCE rose 3% year over year in August. Since spring 2024, he said, core inflation has broadly stayed in a 2.5% to 3.0% range, still above the Fed’s 2% target.
He added: 「At least for the near term, policy will focus on the inflation side of our mandate.」
More hikes remain possible, but not necessarily at consecutive meetings
Waller said he is not especially worried that tighter policy will cause a severe slowdown. His larger concern, he said, is that faster inflation could push up inflation expectations across the economy.
On the path ahead, Waller said further hikes remain on the table and said the Fed could still raise rates by another 75 basis points. At the same time, he said neither the pace nor the size is locked in and that the path will depend on incoming data.
September projections showed that 16 of 18 participants expected at least one more rate hike this year, while four expected two more hikes. Markets are pricing in an 85% chance of at least one more increase before December and a nearly 80% chance of at least two more hikes by March 2027.
Waller said that if the data develops as expected, he anticipates additional tightening, but said rate increases do not need to happen at back-to-back meetings as long as policy reaches the needed level within an acceptable period of time.