Federal Reserve Governor Christopher Waller noted that healthy growth and a resilient low-hire, low-fire labor market support tighter policy at the Dec. 8-9 meeting. Waller indicated that he favors an increase even if October inflation softens, while an upside surprise could justify a half-point adjustment. His aggressive posture contrasts with current market pricing, which completely discounts the likelihood of a half-point move.
Key points
Policymakers risk inadvertently loosening monetary conditions if they fail to deliver an…: Policymakers risk inadvertently loosening monetary conditions if they fail to deliver an anticipated interest rate increase in December.
Stronger-than-expected inflation metrics could push the Federal Reserve to implement a ha…: Stronger-than-expected inflation metrics could push the Federal Reserve to implement a half-percentage-point rate hike instead of a standard quarter-point move.
Sustained economic growth and stable labor conditions provide central bank officials with…: Sustained economic growth and stable labor conditions provide central bank officials with sufficient leeway to continue their monetary tightening campaign.
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Federal Reserve Governor Christopher Waller said Tuesday the central bank needs to follow through on expectations for additional interest rate hikes or risk its credibility, even suggesting that a larger-than-usual half-percentage-point increase could be warranted in December.
Speaking in London, the policymaker said he "is leaning toward" a rate increase in December even if the October inflation data comes in softer than expected — and would support "more robust action" if readings come in higher than forecast.
"In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting," he said. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take."
Waller said Fed communications prior to and at the October meeting led markets already to price in additional rate hikes.
Following through, Waller added, is what's important, even if the hikes come intermittently.
"When this communication is clear and credible, what really matters is that those hikes are eventually carried out — it is not necessary, for example, to raise rates…
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