Federal Reserve Governor Christopher Waller said Thursday that he expects further interest rate increases if economic data continue to evolve as anticipated, in order to support a more timely decline in inflation toward the Fed's 2% target.
Speaking at the Istanbul Economic Forum, Waller stated that there is some flexibility regarding the timing of rate hikes. "Rate increases need not occur at consecutive meetings, but they should be implemented within an acceptable timeframe." The Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points to a range of 3.75% to 4% in September, following nine consecutive months of holding the rate steady.
Inflation Remains Above Fed Target
Waller noted that August data showed the core Personal Consumption Expenditures (PCE) price index rose 0.25% month-over-month, with a 12-month year-over-year increase of 3%. "This is clearly above our target and does not show sufficient progress," he said. Waller described the labor market as stable while "inflation is too high," adding that "at least in the near term, policy will focus on the inflation side of our mandate."
Waller indicated that his decision to shift policy stance in September was not based on a single month of inflation data, but rather reflected "the cumulative weight of evidence over several months," including labor market strength and a series of persistent inflationary forces. The Fed governor said that stronger economic activity in the second half of the year has made him less concerned about a disruptive slowdown caused by tighter monetary policy. He also expressed concern that recent inflation acceleration could lead consumers, investors, and pricing firms to raise their expectations for future inflation.
Energy, AI, and Tariffs in Focus
Waller stated that hopes for a rapid end to Middle East conflicts have been dashed, while experts warn that low inventories and damaged infrastructure could keep oil prices elevated until 2027. The Fed governor pointed to growing evidence that "the AI construction boom is significantly driving up prices of high-tech consumer goods," while ongoing trade conflicts could spawn new tariffs, once again posing upward pressure on inflation.
Waller said these forces "are drowning out fleeting signs of progress toward the 2% inflation target." He noted that the Summary of Economic Projections (SEP) can provide signals about the likely direction of monetary policy, but emphasized that "the path of monetary policy is not preset" and will depend on incoming data and their implications for the Fed's dual mandate.
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