Fed's Waller sees additional rate hikes to get inflation down faster

Federal Reserve Governor Chris Waller said in a speech Thursday that he expects the Fed will need to enact more interest rate hikes to bring down inflation faster if economic data comes in as he expects.

"If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal," Waller said at the Central Bank of the Republic of Türkiye İstanbul Economic Forum. "But there is some flexibility about when those hikes will occur. The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time."

Waller noted a convergence of factors have gelled into persistent inflationary forces, including hopes for a quick ending to the Middle East conflict and warnings that low inventories and damaged infrastructure could keep oil prices high through 2027. He also pointed out that the artificial intelligence build-out has significantly driven up high-tech consumer prices , and projections of its size have ballooned. Additionally, he said, continuing trade conflicts threaten new tariffs that could put upward pressure on inflation yet again.

"When the first inflation reading for August came in hot just before the FOMC's September meeting, it was impossible to deny that inflation was still too high and not making sufficient progress toward our target," Waller said.

Waller sees economic activity strengthening in the second half of this year, and says he's "not greatly concerned" that higher interest rates threaten to markedly slow down the economy.

"But I am concerned that the recent acceleration in inflation — after what soon will be five and a half years of it above the FOMC's target — will lead consumers, investors, and price-setting businesses to revise up their expectations for future inflation."

He noted that he sees the economy in roughly the same place as it was at the time of the Fed's policy meeting in mid-September.

"Overall, the new data reinforce my view that the labor market is stable and inflation is too high," he said. "For at least the near term, policy will be focused on the inflation side of our mandate."

Waller also made a point of sharing how he believes the Fed should communicate its interest rate expectations . He doesn't think choosing to say nothing or offering a strong indication of what the Fed will do is how the central bank should communicate. Rather, he believes an in-between approach of signaling the amount of rate hikes over some time interval, while not saying what the pace of hikes will be or how large they will be, would offer flexibility, while keeping the public informed.