CPI Report Today: Fed’s Waller Says 50-Basis-Point Rate Hike ‘Should Be Considered’ If Core Inflation Remains Elevated

Ahead of the CPI inflation data today, Waller said that the Fed must follow through on the rate hikes it has signaled to avoid an undesirable loosening of monetary policy.

• Fed staff research suggests inflation pressure from the AI buildout and energy prices won’t fade soon.
• Over 70% of core PCE services components rose more than 3% annually in September, Waller said, signaling broadening price pressures.
• Waller questioned whether a “low hire, low fire” labor market is healthy, citing firms delaying hiring after AI investments.

Federal Reserve Governor Christopher Waller said on Tuesday that a 50-basis-point interest-rate hike should be considered in December if core inflation remains elevated, ahead of the closely watched October consumer price index (CPI) report.

Speaking at the Bank of England Watchers Conference in London, Waller said another monthly core CPI reading around 0.3% or higher could require stronger action.

Although Waller said he still favors a smaller 25-basis-point increase if inflation improves, he cautioned that hiking only 25 basis points would put our credibility at risk. “A risk I am not eager to take,” he added.

Why Waller Sees Further Tightening Ahead

Waller supported holding rates steady in October because the Fed's communication had already led financial markets to price in some tightening.

What matters, he said, is ensuring that “the promised hikes are implemented in a reasonable period of time,” as failing to follow through could undesirably loosen monetary policy.

In September, headline personal consumption expenditures (PCE) inflation rose 0.5% monthly and 3.6% annually, while core PCE increased 0.3% and 3.1%, respectively, according to the Bureau of Economic Analysis.

“More than 70 percent of the components of core PCE service prices saw 12-month increases above 3 percent in September,” Waller said, highlighting elevated prices for core goods and market-based services excluding housing.

According to CNBC, economists polled by Dow Jones expect October's headline consumer price index (CPI) to rise 0.3% month over month, while core CPI is expected to increase 0.2%. Both readings would mark a slowdown from September.

AI Spending, Energy Prices Add To Inflation Concerns

The most recent ISM data, for October, point to the possibility of more price increases ahead, Waller said, adding, “Federal Reserve staff have been thinking hard about the effects on inflation of the AI buildout and elevated energy prices, and their findings do not encourage me to think that these factors will be fading anytime soon.”

The Fed Governor also cited research suggesting that elevated energy prices could have a more sustained impact on core inflation, potentially persisting well into 2027.

Waller noted reports that higher shipping insurance costs and ship-to-ship oil transfers to guard against Iranian attacks were adding $20 to $30 a barrel to oil prices, while refining constraints could keep diesel prices elevated.

Strong Growth Masks Labor Market Concerns

Economic output continues to grow at a healthy pace,” Waller said, noting that third-quarter gross domestic product (GDP) rose 3.4%, supported by consumer spending and investment, particularly in AI infrastructure. 

He expects growth to ease somewhat in the fourth quarter as consumer spending slows to levels he sees as “more consistent with household income and wealth,” though output should keep growing at a solid pace.

Although unemployment declined to 4.1% in October, Waller said, “the low hire, low fire equilibrium in the labor market means it has lost some of its dynamism, which is important for productivity growth and real wages.

US Stock Futures Mixed Ahead Of CPI Report

U.S. stock futures traded mixed ahead of the inflation report. S&P 500 futures edged up 0.05%, while Dow Jones Industrial Average futures gained 158 points, or 0.3%. Nasdaq-100 futures slipped 0.29%. 

On Stocktwits, retail sentiment toward the SPDR S&P 500 ETF (SPY) and SPDR Dow Jones Industrial Average ETF Trust (DIA) was ‘bullish,’ while sentiment toward the Invesco QQQ Trust (QQQ) remained ‘neutral.’

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