Waller: If there is another hot reading on core inflation this week, the Fed will need to consider raising rates
Fed's Waller is speaking and gives a hawkish view of policy
- If there is another hot reading on core inflation this week, the Fed will need to consider raising rates in the near term.
- Would need to see several months of lower core inflation to gain confidence inflation is moving in the right direction.
- Concerned about the elevated pace of core inflation.
- There is still a credible case for inflation to return to the 2% target without higher interest rates.
- Committed to returning inflation to the 2% target while avoiding over-tightening policy and risking a recession.
- Concerned that an equally plausible case exists that tighter monetary policy may be needed.
- Expects a deceleration in headline inflation starting with this week's inflation data but will remain focused on the core reading.
- The real side of the economy remains in good shape.
- Determined to avoid repeating the Fed's 2021 mistake, but notes the labor market is not as tight and inflation expectations remain anchored.
- Household and business spending remain resilient despite higher goods costs from tariffs and the energy price surge tied to the Middle East conflict.
- Tariffs, energy prices, and demand from AI-related investment are contributing to upside inflation risks.
- Earlier concerns that higher oil prices could push prices broadly higher have greatly diminished.
- The labor market is stable and close to the Fed's maximum employment goal.
- Expects solid consumer spending growth and continued strength in AI-related investment.
- The labor market is not currently a source of inflationary pressure or a concern for overall economic expansion.
Fed Governor Christopher Waller struck a more hawkish tone, emphasizing that while the labor market is no longer fueling inflation and the broader economy remains on solid footing, core inflation continues to be running too hot. He said the Fed would need to consider raising interest rates if this week's core CPI comes in stronger than expected and stressed that policymakers would need to see several months of softer core inflation before gaining confidence that price pressures are moving back toward the 2% target. Although Waller still believes inflation can return to target without additional rate hikes, he acknowledged that the case for tighter policy is becoming increasingly plausible as tariffs, resilient consumer spending, and AI-driven investment continue to support demand. His comments helped reinforce market expectations, with traders now pricing in roughly a 47% chance of a July rate hike and a 76% probability of a move in September, putting added focus on Tuesday's CPI report and Fed Chair Kevin Warsh's remarks tomorrow.
Market pricing:
- Probability of a July rate hike:47%
- Probability of a September rate hike:76%
- Fed Chair Kevin Warsh is scheduled to speak tomorrow, making this week's inflation data and his remarks the next major catalysts for rate expectations.
Stocks are moving lower with the Nasdaq down -1.23% adn teh S&P dwn -0.60%.
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The USD is moving higher .
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