Fed Governor Waller Signals December Rate Hike, Open to 0.5‑Point Move

Federal Reserve Governor Christopher Waller said he is "leaning toward" supporting a rate increase at the December meeting even if October inflation data come in softer than expected, and that a larger move should be considered if they come in hotter. "In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting," he said in a speech in London. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take".

Waller framed the issue as one of credibility. Fed communications before and at the October meeting, where the committee held rates, led markets to price in additional hikes, and he argued those hikes must be delivered within a reasonable period even if not at consecutive meetings. He noted that a third straight 0.3% rise in core inflation for October would mean annualized inflation running at 3.5%, a lack of progress he said would argue for frontloading the anticipated hikes.

The remarks came hours before the October consumer price index, one of the last inflation reports before the Fed's December 8-9 meeting. Going into the release, markets priced a better than 80% chance of a December quarter-point hike and no chance of a half point, according to CME Group's FedWatch. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented from the October decision to hold.

What to watch: the October core CPI reading. Another 0.3% gain would strengthen the case Waller outlined for a larger or faster move, which would matter for rate-sensitive assets from Treasuries to housing and bank stocks, while a softer print would still leave him leaning toward a quarter-point hike.