- Half-point Fed rate hike may be needed in December, if October Core CPI inflation comes in around 0.3% or higher
- Would support quarter-point rate hike in December even if October CPI improves vs September
- US inflation is too high, September’s inflation data was bad
- Was willing to wait on policy tightening in October; what matters is that promised hikes are delivered in a reasonable period of time
- Particularly concerned about the breadth of price increases
- Suspect GDP growth is backing off in current quarter, but output will continue to grow at solid pace
- Fed staff analyses suggest more producer price increases ahead, and potential for energy price shock to be more persistent
- Labor market solid, supply and demand roughly in balance, employment close to Fed’s goal
- Unclear if labour market is as healthy as the unemployment rate suggests; dynamism and productivity growth questions need more research
These are very hawkish remarks from Fed’s governor Waller as he’s suggesting that a rate hike in December would be warranted regardless of today’s inflation data. The only thing that the data would change for him is the magnitude of the increase as a Core CPI M/M at 0.3% or higher would lead him to vote for a larger 0.5% hike.
Waller stressed that US inflation remains too high and described September’s inflation report as disappointing. He had been willing to wait on further policy tightening at the October meeting, but emphasised that what matters now is delivering the promised rate hikes within a reasonable period of time. He also highlighted concerns about the breadth of price increases, suggesting that inflationary pressures remain more widespread than he would like.
He acknowledged that GDP growth may be slowing in the current quarter, although he still expects output to expand at a solid pace. He noted that Fed staff analyses point to further producer price increases ahead and warned that the energy price shock could prove more persistent than initially expected.
Regarding the labour market, Waller described conditions as broadly solid, with supply and demand roughly in balance and employment close to Fed’s objectives. However, he cautioned that the unemployment rate alone may not fully capture the health of the labour market, pointing to questions surrounding labour market dynamism and productivity growth that require further analysis.
Keep in mind that Waller is a very influential governor and has been a leading indicator for Fed’s policy since 2021. He’s been willing to give disinflation a chance back in September but has now drastically changed his mind. The probabilities for a December hike jumped to 99% following Waller’s comments (the 1% is for a 0.5% hike).
This article was written by Giuseppe Dellamotta at investinglive.com.