Federal Reserve Waller: Supports the December rate hike, and if inflation accelerates, consider adding 50 basis points

The Zhitong Finance App learned that Federal Reserve Governor Christopher Waller said on Tuesday that he supports raising interest rates in December and warned that if inflation continues to accelerate, he will support raising interest rates by 50 basis points to maintain the Federal Reserve's credibility. Waller's blunt statement is the strongest signal from Fed officials so far — not only do policymakers need to raise interest rates in December, but the rate increase may exceed market expectations by 25 basis points.

Waller said that despite a strong economy and a stable labor market, inflation is still too high. His policy proposition depends on the October CPI data to be released by the US Bureau of Labor Statistics (BLS) later on Tuesday.

“If inflation improves month-on-month in October, as I expected, I am inclined to support raising the policy interest rate by 25 basis points.” Waller said during a speech in London.

“But if the October CPI data released later today is similar to the previous two months' readings — core CPI inflation is around 0.3% or higher — then stronger policy action may be needed.” He said, “Under these circumstances, I think we should consider raising interest rates by 50 basis points at the December meeting.”

Waller added that if the above situation were to occur, raising interest rates by 25 basis points according to the normal range would not help gain market confidence that the Federal Reserve is dealing with inflation.

“Raising interest rates by just 25 basis points would jeopardize our credibility, and this is a risk I am unwilling to take.” he said.

Federal Reserve officials kept interest rates unchanged with a 10-2 vote last month, saying “accumulating more information” would help determine the optimal level of policy. Earlier in September, the Federal Reserve unanimously decided to raise the benchmark interest rate by 25 basis points to the target range of 3.75% to 4%.

Since last month's meeting, a number of policymakers have publicly emphasized the need for further rate hikes. On Monday, traders expected the probability of interest rate hikes in December to be around 85%.

Data released last week showed strong employment growth in October and the unemployment rate declined slightly. Before meeting again in December, Federal Reserve officials will also get an employment report and a series of inflation data — starting with the October CPI.