Fed's Waller Backs September Rate Increase, Says Next Moves Will Be Data-Driven

Federal Reserve Governor Christopher Waller said the Fed's September interest-rate increase reflected months of building evidence rather than any single data release, according to an article he published on Oct. 8. Waller noted the central bank had previously delivered 75 basis points of rate cuts from September through December 2025. Conditions shifted in the first half of 2026 as the labor market stabilized, progress on inflation cooled, Middle East tensions lifted energy prices, AI infrastructure investment pushed up technology-goods prices, and trade frictions and new tariffs added to upward pressure. After August inflation came in hotter than expected, the Fed opted to raise rates in September. Waller said recent data supports an assessment of "stable employment and elevated inflation." Core PCE rose 3% year over year in August, with core inflation largely running between 2.5% and 3.0% since spring 2024, above the Fed's 2% target. "At least in the near term, policy will focus on the inflation side of our mandate," he wrote. Waller said he is not particularly worried that tighter policy will trigger a sharp slowdown, but he cautioned that a renewed pickup in inflation could lift inflation expectations more broadly. On the path ahead, he laid out possible increases, including a potential 75-basis-point move, while declining to commit to timing or size and stressing that decisions will depend on incoming data. The Fed's September projections showed 16 of 18 participants expected at least one additional hike this year, with four expecting two. Markets are pricing an 85% chance of at least one hike before December and close to an 80% chance of at least two hikes by March 2027. Waller said additional rate increases are likely if data evolves as expected, adding that hikes need not occur at consecutive meetings as long as they take place within an acceptable timeframe.