Fed's Waller: Further policy tightening will be needed

Federal Reserve (Fed) Governor Christopher Waller said during the European trading session on Tuesday. The support for more interest rate hikes from Fed’s Waller comes at a time when market experts doubt that the central bank will continue raising interest rates due to lower oil prices.

Additional remarks

Half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher.

Would support quarter-point rate hike in December even if October CPI improves vs September.

US inflation is too high, ‘September’s inflation data were bad’.

Was willing to wait on policy tightening in October; What matters is that promised hikes are delivered in a reasonable period of time.

Particularly concerned about the breadth of price increases.

Suspect GDP growth is backing off in current quarter, but output will continue to grow at solid pace.

Fed staff analyses suggest more producer price increases ahead, and potential for energy price shock to be more persistent.

Labor market solid, supply and demand roughly in balance, employment close to Fed’s goal.

Unclear if labor market is as healthy as the unemployment rate suggests; dynamism and productivity growth questions need more research.

Market reaction

A V-shape recovery can be spotted in the US Dollar (USD) after hawkish comments from Fed's Waller. As of writing, the US Dollar Index (DXY) turns flat at around 101.67.

Waller flags risk of larger december hike as Fed tone turns more hawkish

Fed’s Waller delivered a distinctly more hawkish message, with an FXS Speechtracker score of 8.6/10, well above the 7.2/10 historical average, underscoring a stronger tightening bias relative to the established baseline. The explicit openness to a half-point FED rate hike in December if October core CPI prints around 0.3% or higher, alongside support for at least a quarter-point move even on better data, signals a high bar for pausing and a clear intent to lean against persistent inflation. Emphasis on “bad” September inflation, broad-based price pressures, and the risk of more persistent producer and energy price shocks reinforces upside risks for the Dollar as markets reprice the path of policy.

The FXS Fed Sentiment Index rose by 1.58 points to 143.91, confirming a deeper move into hawkish territory and aligning with the elevated FXS Speechtracker score. With the index far above the neutral 100 mark, the speech strengthens expectations for additional tightening and supports a higher-for-longer FED rate narrative in FX and rates markets.