Source: Sharecast
Speaking at a Bank of England conference in London on Tuesday, Waller said he supported a 25-basis-point increase at the Fed's next meeting, even if inflation moderated in October, but argued that stronger action could be necessary if price pressures remained elevated.
He warned that failing to deliver previously signalled increases could encourage financial markets to lower their expectations for interest rates, effectively loosening monetary conditions at a time when inflation remained well above the Fed's 2% target.
While Waller defended the central bank's decision to hold rates steady at its October meeting, he said policymakers needed to follow through on their commitments to prevent markets from loosening policy "in an undesirable way".
He also warned that a smaller increase could undermine the Fed's credibility if inflation remained stubbornly high.
"Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," he said.
Waller pointed to September's personal consumption expenditures inflation rate of 3.7%, with core inflation at 3.1%, arguing that price pressures had become increasingly broad-based.
He also highlighted risks from rising energy costs and demand linked to the artificial intelligence investment boom, warning that some inflationary pressures could persist into 2027.
Meanwhile, he described the US economy as strong, with third-quarter GDP growth of 3.4% and unemployment at 4.1% in October, although he expressed concern about weak hiring and reduced labour market dynamism.
Waller said further tightening was necessary to bring inflation sustainably back towards the Fed's target, with the size of December's increase dependent on incoming inflation data.
"If the October CPI inflation data out later today are similar to the past two monthly readings – with core CPI inflation around 0.3 percent or even higher – then a stronger policy move may be needed. In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting," he said.
Official data from the Bureau of Labor Statistics released on Tuesday afternoon revealed that consumer prices increased 0.4% in October, with core inflation holding steady at 0.3%, ahead of the 0.2% expected by analysts.