Fed’s Waller Signals Possible Half-Point December Rate Hike

Federal Reserve Governor Christopher Waller said Tuesday that incoming economic data could lead him to support a half-point rate increase next month. He said a 50-basis-point move in December should be on the table if October core consumer prices rose at least 0.3%. A quarter-point increase under those conditions would put the Fed’s credibility at risk, he warned. Waller said a quarter-point hike remains his preference if the economy evolves as he expects, even if October inflation cools from September. The FOMC next meets Dec. 8-9. He spoke at the Bank of England Watchers’ Conference at King’s College London. The Bureau of Labor Statistics reported Tuesday that consumer prices rose 0.4% from September to October. Core prices, which exclude food and energy, increased 0.3% for a third straight month, matching the threshold Waller cited. Energy prices rose 0.7%, food prices 0.5%, and electricity prices 0.9%, the largest monthly gain since April. Fed policymakers raised rates by a quarter point in September as they seek to bring inflation back to their 2% target after five and a half years of elevated prices. Waller called economic activity strong and the labor market stable, but said inflation remains too high and well above the 2% goal. Officials held the benchmark rate at 3.75%-4% in late October. CME FedWatch showed traders pricing a 90.5% chance of a quarter-point increase next month and a 9.5% chance of a 50-basis-point move. Treasury yields jumped after Waller’s remarks and the inflation data. The 10-year yield traded above 5% intraday for the first time in a week and was nearly 13 basis points above Monday’s close. The 30-year yield approached 5.38%, its highest since Oct. 29, and stood near 5.35% by midafternoon.