Waller pushes for follow-through on hikes, floats potential half-point move in December

Waller's London warning

Speaking in London on Tuesday, Federal Reserve Governor Christopher Waller said the central bank needs to back up expectations for additional rate hikes or risk credibility. He said he is leaning toward a December increase even if October inflation comes in softer than expected, and that he would support more robust steps if the data come in hotter.

Clear communication, he argued, only works if the moves actually happen. He said back-to-back increases aren't required, but if officials fail to implement the anticipated hikes, markets will quickly trim their expectations and rates would immediately fall, loosening policy in a way the Fed does not want.

Half point on the table, credibility on the line

If inflation readings top forecasts, Waller said "a 50 basis point hike in the policy rate should be considered at the December meeting." He added, "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take."

He noted that guidance before and at the October meeting had already led markets to price in more increases. Higher rates, he said, "will be needed, sooner rather than later," and what matters is that the promised hikes are implemented within a reasonable period.

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October hold, split views, and market odds

The Federal Open Market Committee left rates unchanged in October, saying "the accumulation of more information" will guide the path to bring inflation down. The decision was not unanimous, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting.

Since then, officials have preached patience while reiterating the 2 percent inflation goal. According to CME Group's FedWatch, markets put better than an 80 percent chance on a December quarter-point increase and no chance on a half point. The next policy meeting is Dec. 8-9, and the Bureau of Labor Statistics will release the October consumer price index on Tuesday, one of the last inflation readings before that meeting. Chicago Fed President Austan Goolsbee cautioned that the Fed must avoid overheating, saying "because once it gets overheated, it's extremely painful to get rid of that kind of overheating."

Why it matters for your portfolio

Waller described growth as "at a healthy pace" and the labor market as "solid," even in a low-hire, low-fire environment. He also stressed that while the exact timing of moves is less important, failing to deliver would pull down market rates and ease financial conditions at a time the Fed is still targeting 2 percent inflation.

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