Fed’s Waller opens door to half-point rate hike in December

Christopher Waller, a member of the Federal Reserve board of governors, said Tuesday he may support a half-point interest rate hike next month depending on what economic data indicates.

During the Bank of England Watchers’ Conference, Waller said that “even if” inflation data for October is an improvement over September, he is “leaning toward” supporting a quarter-point rate hike at the Federal Open Market Committee’s (FOMC) next meeting , set for Dec. 8-9.

But Waller noted that is his plan if economic trends play out as he anticipates. If consumer price index (CPI) data for October showed core prices rising by at least 0.3 percent, a “stronger policy move” may be in the cards, the Fed governor argued.

“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” he said at King’s College London. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

The Bureau of Labor Statistics (BLS) released CPI data for October on Tuesday, reporting that prices rose by 0.4 percent from September to last month. Core prices, which do not account for energy and food costs, rose by 0.3 percent for the third straight month, the benchmark Waller referenced.

Energy and food prices, respectively, rose by 0.7 percent and 0.5 percent, while electricity prices experienced their largest monthly jump since April, rising by 0.9 percent, the BLS reported.

FOMC officials hiked interest rates by a quarter point in September, as they attempt to bring inflation down to their 2 percent target after five and a half years of elevated prices.

“Economic activity is strong, the labor market is stable, but inflation is too high, well above the FOMC’s 2 percent goal,” Waller noted Tuesday.

Officials held rates steady at a rate of 3.75 percent to 4 percent in late October. Traders are pricing in a 90.5 percent chance of the FOMC raising rates by a quarter point next month and a 9.5 percent chance of a 50-basis-point increase, according to the CME FedWatch tool .

After Waller delivered his Tuesday remarks and the BLS reported the latest inflation data, bond yields in the U.S. spiked. The 10-year Treasury bond yield topped 5 percent for the first time in a week during intraday trading, and is up nearly 13 basis points from Monday’s closing bell.

The yield on the 30-year Treasury bond , meanwhile, nearly reached 5.38 percent during Tuesday trading, reaching its highest point since Oct. 29. The note is trading at about 5.35 percent as of the mid afternoon.