On Tuesday, October 21, 2025, in Washington D.C., Federal Reserve Governor Christopher Waller delivered remarks at a Fed conference on payments innovation.
In comments on the inflation outlook, Fed Governor Christopher Waller expressed concern on Monday but also cautioned the central bank against "falling back on the old playbook," advising that it should wait for more economic data before raising interest rates.
Speaking in New York, Waller stated that the drivers of the current inflationary episode extend beyond the commonly cited surges in energy prices and tariff barriers. He identified new variables, such as demand expansion fueled by artificial intelligence, as core underlying factors keeping inflation persistently above the Fed's 2% target.
Waller warned: "A single-minded focus on avoiding past mistakes can lead to new policy errors."
"I am well aware of the Fed's 2021 mistake—failing to act promptly in the face of high inflation—and I have no desire to repeat history," he said.
However, he added that this does not mean the central bank should immediately raise rates at the first sign of rising prices.
Waller noted there are good reasons to believe inflation may gradually decline, but the possibility of persistently high or even reaccelerating inflation cannot be ruled out. Should that scenario materialize, monetary policy tightening would be required in the near term.
The policymaker outlined multiple sources of the current inflation, including various tariffs implemented in 2025, Middle East conflicts pushing up energy prices, and inflationary spillover effects from the substantial demand generated by artificial intelligence.
"We must avoid the error of 'fighting the last war' on inflation—we cannot tighten policy hastily just because we acted too slowly last time. But at the same time, we cannot repeat the mistake of 2021-2022 by delaying action for too long."
Waller stated that two favorable conditions in the current environment support the Fed's patient approach: a resilient labor market that is not a primary driver of inflation, and overall stable inflation expectations as measured by market-based indicators.
Nevertheless, he cautioned markets against complacency.
"I often hear the argument that as long as inflation expectations are anchored, the central bank does not need to react to inflation above target. That view is mistaken. We cannot simply rely on hope that inflation will come down on its own if we just wait and watch."
Waller's remarks came a day before the U.S. Bureau of Labor Statistics was scheduled to release the June Consumer Price Index (CPI). Economists surveyed expect the headline CPI to have fallen 0.2% month-over-month, influenced by a significant drop in oil prices, while the core CPI, excluding food and energy, is forecast to have risen 0.2%.
On an annual basis, headline CPI is projected to ease to 3.8% from 4.2% in May, with core CPI declining to 2.8% from 2.9%.
Waller said: "I would be very encouraged if the core inflation numbers come in low. But with core inflation running higher in the first half of this year, I would need to see several months of cooling data to be confident inflation is on a sustained downward path. Given the factors discussed today, that favorable path remains a possibility. If the data continue to improve, the Fed would maintain the current target range for the policy rate."
The Federal Reserve is scheduled to hold its policy meeting in late July. According to pricing in CME Group's FedWatch Tool, markets are currently assigning roughly a 39% probability of a rate hike at that meeting.
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