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Waller Signals Support for December Rate Hike, Puts Half-Point on Table
Confirmed
In Short: Federal Reserve Governor Christopher Waller signaled support for a quarter-point rate hike in December, but also indicated a half-point increase could be considered if October's inflation data remains strong.
Christopher Waller (Wikidata P18).
Federal Reserve Governor Christopher Waller said on Tuesday that he would support a quarter-point rate increase in December, even if October's consumer price data showed an improvement from the previous month. Waller's comments came during a speech at the Bank of England Watchers Conference in London.
Waller explained that the timing of rate increases was less important than delivering the monetary tightening the Federal Reserve had previously signaled in its communications with financial markets. He noted that failing to deliver the hikes markets expect would loosen conditions “in an undesirable way”, which is why the last hold did not mean a retreat.
Waller also indicated that a half-point rate increase should be considered if October's core CPI inflation data comes in around 0.3% or higher. He cited Fed research published Nov. 9 suggesting core inflation has become more responsive to oil shocks since the pandemic, with effects that could last 'well into 2027' if oil prices remain high.
In the bond market, the benchmark 10-year US Treasury yield increased by around 4.4 basis points to 4.612%, while the two-year yield climbed approximately 4 basis points during Waller's remarks. This shift in market expectations toward renewed monetary tightening was reflected in the probability of a 25-basis-point rate increase, which climbed to 97% from 84%, according to CME Group's FedWatch tool.
Before Waller spoke, futures priced 0% odds of a 50-basis-point move, but after his comments, the probability of a quarter-point hike rose to 96.3% from 76.3%, Cointelegraph reported. InvestingLive put the probability at about 99%, with about 1% on a half-point move.
Waller's hawkish stance reflects a broader shift within the Federal Reserve, with other central banks also leaning toward December hikes. ECB Governing Council member Philip Lane called a December ECB hike “prudent as things stand”, with inflation “just over 4%” by end-2026.
Waller's comments also highlighted the impact of AI-driven productivity and fiscal policy on the neutral rate, suggesting that policy is “not nearly as restrictive” as previously thought. He argued that the AI buildout itself is a reason to tighten monetary policy.
The Federal Reserve kept interest rates unchanged at its October meeting, in line with expectations that monetary tightening could resume at a later stage. Waller voted with the majority to hold the federal funds rate at 3.75%-4% on Oct. 28.
What this adds
Waller's hawkish comments quickly affected financial markets, helping the US dollar recover some of its earlier losses while pushing Treasury yields higher as investors reassessed the outlook for monetary policy.
Background
Despite recent market stability, financial analysts and central bank officials warn that the risk of a key US interest rate rise remains.
The risk of a key US interest rate rise remains, despite recent market stability, as traders and central banks continue to monitor economic indicators.
What's confirmed
- Federal Reserve Governor Christopher Waller said on Tuesday that he would support a quarter-point rate increase in December, even if October's consumer price data showed an improvement from the previous month. Waller's comments came during a speech at the Bank of England Watchers Conference in London.
- Waller explained that the timing of rate increases was less important than delivering the monetary tightening the Federal Reserve had previously signaled in its communications with financial markets. He noted that failing to deliver the hikes markets expect would loosen conditions “in an undesirable way”, which is why the last hold did not mean a retreat.
- Waller also indicated that a half-point rate increase should be considered if October's core CPI inflation data comes in around 0.3% or higher. He cited Fed research published Nov. 9 suggesting core inflation has become more responsive to oil shocks since the pandemic, with effects that could last 'well into 2027' if oil prices remain high.
- In the bond market, the benchmark 10-year US Treasury yield increased by around 4.4 basis points to 4.612%, while the two-year yield climbed approximately 4 basis points during Waller's remarks. This shift in market expectations toward renewed monetary tightening was reflected in the probability of a 25-basis-point rate increase, which climbed to 97% from 84%, according to CME Group's FedWatch tool.
- Before Waller spoke, futures priced 0% odds of a 50-basis-point move, but after his comments, the probability of a quarter-point hike rose to 96.3% from 76.3%, Cointelegraph reported. InvestingLive put the probability at about 99%, with about 1% on a half-point move.
- Waller's hawkish stance reflects a broader shift within the Federal Reserve, with other central banks also leaning toward December hikes. ECB Governing Council member Philip Lane called a December ECB hike “prudent as things stand”, with inflation “just over 4%” by end-2026.
- Waller's comments also highlighted the impact of AI-driven productivity and fiscal policy on the neutral rate, suggesting that policy is “not nearly as restrictive” as previously thought. He argued that the AI buildout itself is a reason to tighten monetary policy.
- The Federal Reserve kept interest rates unchanged at its October meeting, in line with expectations that monetary tightening could resume at a later stage. Waller voted with the majority to hold the federal funds rate at 3.75%-4% on Oct. 28.
What's still developing
- EU mid-market update: Hawks fly in as Fed's Waller puts 50bps hike on table and ECB's Lane backs hike; US gasoline back below $4 as we wait for US inflation this morning; Anthropic targeted ~$70B IPO at $70-80/shr but then said the pricing details were inaccurate. - Fed Gov Waller said a 50bp December hike should be considered if today’s core CPI comes in around 0.3% or higher, with the ECB, BoE and BoJ also leaning toward December hikes.
- The August flash release increased markedly for the second month in a row to the highest level since December 2024.
- On the wires, Fed's Waller (voter) is expected to speak.
- Waller's hawkish comments quickly affected financial markets, helping the US dollar recover some of its earlier losses while pushing Treasury yields higher as investors reassessed the outlook for monetary policy.
- He would back 25bps even if CPI improves, and said hikes previously signalled for January or March may need to come forward if inflation shows no progress.
- EU mid-market update: Hawks fly in as Fed's Waller puts 50bps hike on table and ECB's Lane backs hike; US gasoline back below $4 as we wait for US inflation this morning; Anthropic targeted ~$70B IPO at $70-80/shr but then said the pricing details were inaccurate.