US Federal Reserve Governor Christopher Waller has signaled that further interest rate hikes are likely in the coming months. This is due to inflation remaining stubbornly above the central bank's 2 per cent target. Waller's comments were made at the Istanbul Economic Forum in Trkiye on Thursday. He stated that the US economy remains resilient enough to withstand tighter monetary policy. Persistent price pressures continue to pose risks to inflation control.
Waller emphasized that if economic data continues to come in as expected, he anticipates additional hikes. These hikes will support a timelier return of inflation to the 2 percent goal. However, he clarified that the central bank does not necessarily need to raise rates at every policy meeting. The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time. This approach will allow the Fed to assess the impact of previous hikes.
The Federal Open Market Committee (FOMC) raised its benchmark interest rate by 25 basis points in September. The new rate range is 3.75-4 per cent, ending a nine-month period of unchanged rates. Waller explained that the decision to resume tightening was driven by several months of economic evidence. This evidence showed a strengthened labor market and persistent inflationary forces. These forces include elevated energy prices and uncertainty surrounding global trade.
Waller highlighted several factors contributing to inflationary pressures. The ongoing Middle East conflict has led to high energy prices. Damaged infrastructure and low inventories could keep oil prices elevated through 2027. The expansion of artificial intelligence infrastructure is also driving up high-tech consumer prices. Additionally, continuing trade conflicts and the possibility of additional tariffs could put renewed upward pressure on inflation.
According to the latest economic data, US core personal consumption expenditures inflation stood at 3 per cent annually in August. This remains above the Fed's target. Waller stated that the new data reinforce his view that the labor market is stable and inflation is too high. For at least the near term, policy will be focused on the inflation side of the Fed's mandate.
Waller expressed confidence that tighter monetary policy would not significantly damage economic growth. He cited signs of strengthening economic activity in the second half of 2026. The Fed's September economic projections showed that 16 of 18 policymakers expected at least one additional interest rate hike during the remaining two meetings of 2026. Four of them anticipated two more increases.
Financial markets are also pricing in further tightening. Futures indicate an 85 per cent probability of at least one rate hike by the December meeting, based on prices as of October 7. Waller emphasized that the Fed's economic projections help communicate the likely direction of monetary policy without committing policymakers to a fixed path. The goal is to achieve price stability and maximum employment.
Key points
- US Federal Reserve Governor Christopher Waller signals further interest rate hikes are likely due to persistent inflationary pressures.
- The US economy remains resilient enough to withstand tighter monetary policy, according to Waller.
- Financial markets expect further rate hikes, with an 85 per cent probability of at least one hike by December.
