‘My focus will be on inflation’: US Federal Reserve Governor Waller signals potential rate hikes if inflation tends higher

NEW YORK: US Federal Reserve Governor Christopher Waller’s address at the New York Association for Business Economics framed a pivotal moment: the Fed is standing at a critical crossroads, haunted by its slow response to the inflation spike of 2021, and firmly rejecting passivity in the face of climbing prices.

“Unless I see evidence of a significantly weakening labour market, my focus will be on inflation,” stated Waller, warning that the US central bank may need to implement tighter monetary policy if core inflation remains firmly elevated or continues its upward trajectory.

Speaking at the New York Association for Business Economics in New York, Waller highlighted that while household spending, business investments, and the labour market remain remarkably resilient, the trajectory of inflation has placed monetary policy at a critical crossroads.

Monetary Policy at a Crossroads

Governor Christopher J. Waller

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Waller expressed deep concern over the acceleration of underlying price pressures, noting that the 12-month core personal consumption expenditures rate crept up steadily from 3 per cent in December 2025 to 3.4 per cent in May.  He emphasised that forthcoming economic indicators, specifically the consumer and producer price indexes, will dictate the immediate direction of the Fed’s next policy moves.

“I would be very pleased to see a lower reading on core inflation, but after its escalation over the first half of this year, I will need to see several months of lower readings to feel that inflation is moving in the right direction,” Waller said. “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term.”

He indicated that policymakers are past the point of blaming temporary factors like import tariffs or initial commodity price surges linked to the Middle East conflict, as the price increases have become significantly broad-based across both core goods and core services.

“Because core inflation is a good guide to future inflation, I am concerned that, if this upward trend continues, it will be hard to push inflation back toward the Committee’s two per cent goal with monetary policy at its current setting,” Waller said. “As I said in a May 22 speech, I am cognizant of the mistake we made in 2021 by not responding sooner to the high inflation we observed, and I am determined to avoid repeating it.”

He clarified that the Federal Open Market Committee must remain highly vigilant rather than passive, emphasising that the strength of the ongoing six-year economic expansion gives the Fed room to act if necessary. He explicitly rejected the notion that policymakers can simply wait out elevated inflation numbers without adjusting the policy rate, especially when the domestic labour market continues to display robust stability.

“When inflation is well above its target and the labour market is near full employment and stable, any serious policy rule calls for raising the policy rate to bring down inflation,” Waller stated. “Sternly staring at inflation until it melts before our withering gaze is not an option.”

Despite these hawkish warnings, Waller outlined vital differences between the current economic landscape and the severe inflationary crisis of 2021 and 2022. He noted that the US labour market is far more balanced today, with the job vacancy-to-unemployed ratio sitting near one-to-one rather than the previous two-to-one extreme, which drastically reduces the immediate risk of an involuntary spike in unemployment from rate hikes.

Furthermore, public and market-based inflation expectations remain strongly anchored near the two per cent target, allowing the central bank to evaluate incoming data with greater deliberation. (ANI)