Waller Says 50-Basis-Point Rate Hike Should Be Discussed if Core Inflation Stays High
Key Facts
The dollar was steady on Tuesday, November 10, after several volatile days, supported by hawkish comments from Federal Reserve Governor Christopher Waller ahead of U.S. inflation data, Reuters reported. Waller said that if October’s core consumer price inflation reading was near 0.3% month over month or higher, a stronger move in monetary policy could be worth considering. He put a 50-basis-point rate hike at the December meeting among the possibilities. His comments came after he said he had supported holding rates steady at the committee’s last meeting, because its communication about expected tightening had already led markets to price in some tightening. Reuters reported that markets fully priced in a December rate hike after his comments, giving the dollar a limited boost.
Waller said his position at the last meeting was based on markets beginning to account for a more restrictive path, but he tied the next move to the upcoming inflation data. He added that he would continue to support a 25-basis-point increase in December if inflation eased as he expected. But if core consumer price inflation came in at around 0.3% month over month or higher, he said a 50-basis-point increase should be up for discussion. This distinction puts October’s data at the center of judgments about the potential size of the move, not just its timing. The Bureau of Labor Statistics had scheduled the release of October consumer price data for November 10 at 08:30 a.m. Eastern time.
Ahead of the October data, economists polled by Reuters forecast core inflation would rise 0.2% month over month, after a 0.3% increase in September. The report linked the forecast to a possible slowdown in airfares, offset by continued increases in hotel costs and the measure of housing rents. Year over year, the poll forecast core inflation would rise to 2.7% in October from 2.6% in September. The report noted that some estimates of October’s annual inflation were based on economists’ estimates for the year-earlier index because inflation data for that year were unavailable. October figures in this comparison therefore remain pre-release estimates, not actual data readings.
September’s reading provides a backdrop to concerns that price pressures could persist: the headline consumer price index rose 0.6% during the month, after a 0.4% increase in August, and was up 3.7% over the 12 months. A 9.1% rise in the gasoline index in September accounted for more than half of the monthly increase in the headline index, according to the Bureau of Labor Statistics. Waller also cited the personal consumption expenditures price index, which rose 0.5% in September and 3.7% over the 12 months, while the core index increased 0.3% month over month and 3.1% year over year. He said more than 70% of the components of core personal consumption expenditures services prices recorded annual increases exceeding 3% in September. He warned that energy-related price pressures could persist through 2027 if oil prices remained high.
Waller’s inflation assessment was based on an economy that, according to his preliminary estimate, recorded real gross domestic product growth of 3.4% in the third quarter, supported by consumer spending and investment. He said the unemployment rate fell to 4.1% in October and the economy added 165,000 jobs during the month. Another 85,000 jobs were added to estimates for the previous two months, according to his speech. In trading, sterling fell 0.1% to $1.3425, while the dollar edged up to 158.1 yen, Reuters reported. Markets are awaiting October’s data to see whether it supports the path of increases Waller outlined or changes investors’ assessment of price pressures.