Higher interest rates needed to rein in inflation, says Fed's Waller

• US monetary policy remains insufficiently restrictive in the view of Fed Governor Christopher Waller.
• More aggressive policy action could be needed if October’s monthly inflation reading comes in at 0.3%.
• Bringing inflation down requires higher interest rates, the Fed Governor argues.

Higher interest rates are needed to exert downward pressure on inflation, Federal Reserve (Fed) Governor Christopher Waller argues on Tuesday, striking a hawkish note, according to Reuters.

Waller Signals a Need for Tighter Policy

An October US monthly CPI reading of 0.3% would indicate inflation was moving further from target, calling for more aggressive policy action.

I don’t expect AI to deliver broad-based productivity gains for some time.

Maintaining the current degree of monetary policy restrictiveness requires real rates to rise.

I had expected policy to be far more restrictive than it has proved to be.

To exert downward pressure on inflation, we need to increase rates.

When asked about sharp movements in share prices, he says they generally have little bearing on his interest rate outlook.

Presidential appointments to the Fed will face a check from Democratic control of Congress.

US Dollar Recovers After Hawkish Remarks

Trading around 101.70, the US Dollar Index (DXY) is up 0.05% on Tuesday as the US Dollar (USD) recovers from earlier losses in response to Waller’s hawkish remarks.

Waller Signals Larger December Hike Risk as Inflation Concerns Mount

A 9/10 FXS Speechtracker score, well above the historical average of 7.3/10, highlighted the notably more hawkish tone of Fed Governor Waller’s remarks and a clear shift towards tighter policy. He explicitly left open the possibility of a half-point FED rate increase in December should October core CPI come in at around 0.3% or higher, while backing at least a quarter-point rise even if the data improve. That stance signals a strong policy response to any indication that inflation is moving away from target. His focus on widespread price pressures, continued resilience in growth and labour market conditions, and policy proving less restrictive than he had previously believed reinforces upside risks for the Dollar and short-dated yields.

At 145.50 after a rise of 3.17 points, the FXS Fed Sentiment Index remained firmly in hawkish territory, consistent with the elevated FXS Speechtracker score. Together, the readings suggest a market narrative centred on renewed determination to tighten policy. Expectations are shifting towards higher rates and potentially faster increases if forthcoming inflation figures fail to demonstrate convincing progress.