Fed Governor Waller Urges Caution on Rate Hikes Amid Evolving Inflation Drivers
Fed Governor Christopher Waller warned against premature policy moves, noting inflation now stems from factors beyond energy prices and emphasizing the need for more data before any rate changes.
Federal Reserve Governor Christopher Waller said the central bank should avoid repeating past policy errors and wait for additional data before deciding on further interest-rate hikes. Speaking in New York, he noted that inflation has broadened beyond the energy price spikes and tariffs that were previously highlighted, pointing to influences such as artificial-intelligence-driven demand as contributors to price pressures that remain above the Fed’s 2% target.
"The desire to avoid past mistakes is often the author of new ones," Waller said, adding that the Fed must not react too quickly to tighten policy, even as it remains vigilant.
He acknowledged a “credible case” for inflation to start declining but also warned that a scenario in which price growth stays high could require tighter monetary policy in the near term. Waller highlighted two favorable conditions: a resilient labor market that is not feeding inflation and well-anchored inflation expectations measured by market indicators.
"I often hear people say that because inflation expectations are anchored, central bankers do not have to respond to above-target inflation. This view is wrong," he said, stressing that passive observation is not an option.
Waller’s comments came ahead of the Bureau of Labor Statistics’ June consumer-price index release, which economists expect to show a modest decline in headline inflation and a slight rise in core inflation. He said a sustained series of lower readings would be needed before he felt confident that inflation is on a durable downward path, after which he would likely keep the policy rate unchanged.
The Fed’s next policy meeting is scheduled for late July, with market pricing indicating roughly a 39% probability of a rate increase.