Federal Reserve Governor Christopher Waller said Tuesday that the central bank likely needs to raise interest rates in December and suggested a half-percentage-point increase could be warranted if inflation comes in higher than expected.
Speaking in London, Waller said he "is leaning toward" a rate increase in December even if October inflation data disappoints. He stated that a 50 basis point hike should be considered if readings come in stronger than forecast, adding that "hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take."
Waller emphasized the importance of following through on rate hike expectations. He noted that the Fed's earlier communications have already led markets to price in additional increases. If promised hikes are not carried out, he said, "markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way."
The timing of hikes matters less than ensuring they happen within a reasonable window, Waller added. Higher rates "will be needed, sooner rather than later."
The Bureau of Labor Statistics will release October consumer price index data Tuesday, one of the final inflation reports before the Fed's Dec. 8-9 policy meeting. Markets are currently pricing in an 80% chance of a quarter-point December hike, according to CME Group's FedWatch, with no chance assigned to a half-point increase.