Federal Reserve Chair Waller used a post-hike press conference to reframe how markets think about this tightening cycle, repeatedly saying the latest move merely removed a "dose of accommodation." When pressed on where rates now sit relative to the neutral rate, he offered a second remark that drew just as much scrutiny: the concept is "useful academically," but has "no operational effect" on the decisions the Fed is making today.
Those three words and that one answer are pushing Wall Street to reassess both the path of future hikes and the policy framework behind them.
Under Waller’s framing, even after the target range rose to 3.75%-4%, policy remains stimulative. The hike, in his telling, only withdrew one "dose" of that accommodation. At the same time, the neutral rate, which has served as the Fed’s central reference point for judging restraint versus support for more than a decade, was set aside at the operational level.
CME FedWatch data showed the odds of another hike in October rising to about 58%, up from 42% a week earlier. Goldman Sachs and Bank of America both added to their tightening calls, and BofA also expects another move in December. Futures imply a 2027 year-end rate of 4.635%, a market signal that points to three or four more hikes from here.
A "dose of accommodation" rather than a clearly restrictive stance
Waller repeated the phrase several times during the press conference and said the decision to raise rates rested on the view that the U.S. economy appeared to have "strengthened" and that financial conditions had become less tight.
Krishna Guha, vice chair of Evercore ISI covering economics and central bank strategy, said in a client note that this was the "most prominent hawkish element" of the press conference. "This was not a slip. He repeated it several times, clearly deliberately," Guha wrote. "This framework differs in a material way from the language the Fed has used in recent years and suggests the number of hikes could be open-ended."
James Egelhof, chief U.S. economist at BNP Paribas Securities, read the wording in even starker terms. In the Fed’s vocabulary, he said, accommodation means stimulus. "That means the current monetary policy stance is significantly stimulative. Starting from a stimulative setting, with strong cyclical momentum and persistent inflation, it may take substantial rate hikes — perhaps more than the three we expect — to stabilize unemployment and prevent the economy from overheating next year."
Taking Waller’s framework literally, Guha added, "rates may need to keep rising until financial conditions facing the private sector are no longer 'easy' — however defined. That is a fairly open-ended outlook."
The neutral rate loses its operational role
During the press conference, CNBC reporter Steve Liesman asked how far current rates are from the neutral rate, or r*.
Waller said that as a student of economics he had studied the neutral rate, the "Wicksellian real rate" named after Swedish economist Knut Wicksell. He said the concept is "useful academically" and part of how policymakers discuss the economy, but it has "no operational effect" on the decisions the Fed is making now.
That line matters because since the Ben Bernanke era, the neutral rate has been the Fed’s main policy guidepost. Rates above it are treated as restrictive, while rates below it are treated as accommodative. Policy debate has revolved around that unseen benchmark for years. By casting it as an academic reference rather than a practical one, Waller effectively sidelined a system the Fed has used for more than a decade.
Some analysts see that as a turn toward monetarism and have described it as a "seismic shift." The report notes that Waller’s predecessor Powell remains on the Federal Open Market Committee as a governor, and Powell had repeatedly rejected core monetarist ideas. Waller, by contrast, had already pointed in this direction at Jackson Hole in August, when he argued that changes in money supply are linked to economic activity and inflation.
Money supply moves closer to center stage
The latest press conference was taken as further confirmation of that tilt. Waller laid out several positions closely aligned with monetarist thinking: changes in individual prices such as food and energy do not themselves "cause" inflation; the Fed’s job is to make sure such relative price changes do not trigger second- and third-round effects; any single data point is "full of noise" and the trend matters more; and the Fed deals in aggregates, including the labor market, GDP, total spending, and overall inflation.
He also acknowledged that the lowest-income households, those without financial assets and living on wages, stand to gain the most from price stability.
Money supply data already offer one clue to that framework. Waller said at least twice during the press conference that he has found it hard in recent months to describe financial conditions as "tight." Analysts cited in the report said U.S. broad money growth has held in a 6%-8% range over the past six to nine months, still clearly too high. To hit a 2% inflation target, that pace would need to fall to around 6%. Compared with the abstract and unobservable neutral rate, money supply growth offers a more direct basis for judging policy.
What Wall Street is pricing in
Jack Janasiewicz, chief portfolio strategist at Natixis Investment Managers, said the phrase "dose of accommodation" "strengthens the hawkish tone and suggests the committee no longer sees policy as moderately restrictive." Even so, he said he does "not believe this marks the start of an aggressive new tightening cycle" and instead reads it as "removing the insurance cuts the Fed delivered in the fall of 2025."
If futures pricing proves correct, Waller’s Fed would at a minimum reverse most of the rate cuts approved under Powell.
But the debate is no longer only about how many hikes remain. If the neutral rate is no longer an operational guide and money supply is taking a larger role, markets may have to adapt to an entirely different policy map. After three press conferences, Waller has sketched the outline of that framework. He still has not said where the hiking cycle ends.