- More hikes needed but flexible about the pace
- Further hikes do not need to come at consecutive meetings
- Inflation too high, with AI buildout, ongoing energy shock among a range of persistent inflationary forces
- There is evidence that economy is strengthening in the second half of 2026
- Concerned high inflation, now approaching 5-1/2 years above target, will put inflation expectations at risk
- Labor market was “solid and stable” in September even though number of jobs created was down
- Anticipates additional hikes if data come in as expected
- Fed communications can avoid the promises of forward guidance, but still improve outcomes with ‘signaling’ to markets about possible policy choices
Federal Reserve Governor Christopher Waller said that additional rate hikes will likely be needed to bring inflation back to the Fed’s 2% target, although he added that the pace of tightening can remain flexible. Speaking at the Central Bank of the Republic of Türkiye’s Istanbul Economic Forum, Waller said further hikes do not necessarily need to come at consecutive meetings, leaving the door open to a pause at the Fed’s October 27–28 meeting. If the economy and inflation evolve as expected, however, he anticipates additional increases will eventually be required.
Waller’s main concern remains persistent inflation and the risk that it becomes embedded in expectations. He noted that inflation has now been above the Fed’s 2% target for around five and a half years, while the economy appears to have strengthened in the second half of 2026. He highlighted several persistent inflationary forces, including the ongoing energy shock linked to the Iran conflict and rising demand associated with the AI buildout. At the same time, he described the labor market as “solid and stable” despite the slowdown in job creation in September, suggesting that the Fed has room to keep its focus firmly on inflation without being overly concerned about causing a damaging economic slowdown. Yesterday’s FOMC minutes similarly showed concern that energy costs and AI-related investment could keep inflation pressures elevated.
Waller also addressed the Fed’s approach to forward guidance and communication. Rather than committing to a predetermined rate path, he argued that policymakers can still signal the range of policy choices they are considering while retaining flexibility to respond to incoming data. In his view, this allows markets to form expectations about the likely direction of policy without the Fed making promises it may later have to reverse.
This article was written by Giuseppe Dellamotta at investinglive.com.