Federal Reserve Governor Christopher Waller stated that further interest-rate hikes are still needed to bring inflation back to the 2% target, though they need not be implemented at every subsequent meeting. He expects the 2027 dot plot to likely depict a path of rate increases early in the year followed by cuts, adding that investment in AI infrastructure and energy shocks have made inflationary pressures more persistent, while the U.S. economy is strengthening in the second half of the year.
Federal Reserve Governor Waller stated that the Fed still needs to raise interest rates further to bring inflation back down to its 2% target, but such rate hikes do not have to occur at every consecutive policy meeting; officials can adjust the timing flexibly based on economic data.
According to Bloomberg, Waller said Thursday at an event hosted by the Turkish central bank in Istanbul that, if economic data continue to meet expectations, he expects further interest-rate hikes—but these increases need not be scheduled back-to-back and should be completed within a reasonable timeframe.
Waller also stated that the 2027 dot plot could reflect a path of rate hikes at the start of the year followed by cuts later on. He noted that the projections released in September indicated that the median Fed official expects one more rate hike this year, but cautioned that when interpreting the 2027 dot plot, it is important to bear in mind that some officials' forecasts may incorporate an early‑year hike followed by rate cuts within the year.
The market has now scaled back bets on another rate hike at this month's Federal Reserve meeting, shifting more of its expectations to a December increase. Last month, the Fed voted unanimously to raise rates by 25 basis points—the first hike since July 2023.
Inflationary pressures remain elevated, and the economy is expected to strengthen in the second half of the year.
Waller stated that the September rate hike was not determined by any single data point, but rather by a combination of indicators showing inflation remaining persistently above target. Recent acceleration in inflation, coupled with the prospect of inflation staying above the 2% target for a fifth consecutive year and a half, could prompt consumers, investors, and businesses to revise upward their expectations for future inflation.
He also noted that factors such as the expansion of investment in AI infrastructure and ongoing energy shocks could make inflationary pressures more persistent.
On the economic front, Waller stated that evidence indicates U.S. economic activity has been strengthening in the second half of 2026, so he is not overly concerned that tighter monetary policy will trigger a severe economic slowdown. Despite a decline in September's job gains, he believes the labor market remains "solid and stable" overall.
Waller also noted that eight officials project the federal funds rate will be 50 basis points higher than its current level by the end of 2027.
On the front of policy communication, Waller stated that the Federal Reserve can sidestep the commitment constraints imposed by forward guidance while enhancing policy effectiveness by "signaling" to the market its potential policy options.
Editor/lambor