Fed Governor Waller Backs December Rate Increase Despite Stable U.S. Labor Market

Federal Reserve Governor Christopher Waller said Tuesday he is leaning toward raising interest rates by a quarter percentage point in December, even as he described the U.S. labor market as stable. His concern is that inflation remains too high to justify leaving monetary policy unchanged for much longer.

Waller also raised the possibility of a larger, half-point increase if October consumer inflation proved stubborn. In remarks prepared for a conference in London, he said core consumer prices rising around 0.3% over the month, or more, would warrant consideration of a 50-basis-point move. That would be twice the increase he currently favors.

The distinction matters because fresh data released later Tuesday showed just such a reading. Core consumer prices rose 0.3% in October, matching their increases in August and September. The result strengthens the relevance of Waller’s conditional warning, but it does not establish how he will vote in December or what the wider Federal Open Market Committee will decide.

Waller laid out his position in a Federal Reserve speech on the economic outlook. His case for higher rates rested less on concern about overheating employment than on the risk that prolonged inflation could weaken confidence in the central bank’s commitment to its 2% target.

October Inflation Keeps a Larger Rate Hike in the Discussion

The Labor Department’s October consumer price report showed the headline consumer price index rising 0.4% from September, following a 0.6% increase the previous month. That was a moderation in the overall monthly pace, but prices excluding food and energy still climbed 0.3%, the third consecutive month at that rate.

The figures present policymakers with a mixed picture. Energy prices rose 0.7% in October after jumping 5.2% in September, so that source of inflation slowed considerably. Shelter costs increased 0.3%, compared with 0.4% in September. Food prices, however, rose 0.5%, and some service categories continued to record sizable increases. A slower headline figure therefore did not amount to a broad-based easing in underlying price pressures.

Waller’s prepared remarks preceded the new inflation figures. He said he would still support a 25-basis-point rate hike if October brought the improvement he expected. But he drew a more demanding line for core inflation: another reading near 0.3% would, in his view, justify discussing a half-point increase. October’s result met that stated condition for consideration, not a promise of a particular vote.

The government could not publish the usual 12-month inflation rates for most October CPI categories because the October 2025 indexes were unavailable following a lapse in federal appropriations. That limitation makes the monthly readings especially important for assessing the latest direction of inflation. They also need to be interpreted alongside the Federal Reserve’s preferred personal consumption expenditures, or PCE, price index rather than treated as a direct replacement for it.

The latest available PCE figures, for September, showed prices increasing 0.5% during the month and 3.6% over 12 months, according to the Bureau of Economic Analysis. Excluding food and energy, PCE prices rose 0.3% for the month and 3.1% over the year. Both annual measures remained well above the Fed’s 2% inflation objective, supporting Waller’s view that policy still has work to do.

His concern extends beyond headline energy costs. Waller said price increases had become more widespread in goods and market-based services, with more than 70% of core PCE service components posting annual gains above 3% in September. He also pointed to research suggesting that demand for high-tech equipment and persistent energy costs could keep pressure on producers. Those are risks to future inflation, not evidence that another acceleration is inevitable.

Stable Payrolls Mask a Slower-Moving Labor Market

On employment, Waller offered a less urgent assessment. The unemployment rate eased to 4.1% in October from 4.2% in September, and employers added 165,000 jobs. The Bureau of Labor Statistics also revised combined payroll gains for August and September upward by 84,000. Those numbers suggest that employment has continued to expand without the sharp deterioration that would normally strengthen the case for lower interest rates.

One strong month does not tell the whole story, however. Waller noted that payroll growth has been much slower when averaged over longer periods, with six-month and 12-month gains running near 80,000 jobs a month in his assessment. He sees that pace as broadly consistent with a labor market in which the supply of workers and demand for their services are roughly balanced.

He also cautioned against assuming that stability means the job market is healthy in every respect. Hiring and separations have both been unusually subdued, a pattern he called “low hire, low fire.” Employers are not dismissing many workers, but they are also creating fewer opportunities for people looking for a different job. This can leave the overall unemployment rate looking relatively calm even when finding work is difficult for certain groups.

The official October employment release illustrates the tension. About 2 million people had been unemployed for at least 27 weeks, accounting for 27.6% of all unemployed workers. Waller expressed particular concern about people who have been out of work for extended periods and younger entrants who may struggle to get a first foothold in the labor market. Low layoffs offer protection for people already employed, but weak hiring can make joblessness harder to escape.

There is no single established explanation for the reduced movement between jobs. Waller discussed an aging and more educated workforce, uncertainty around artificial intelligence and tariffs, and the possibility that workers who changed jobs during the pandemic simply have less reason to move again. Some explanations could reflect better matches between workers and employers; others could signal obstacles that hurt productivity and wage growth. He treated those longer-term questions as unsettled rather than as a reason to change his immediate inflation assessment.

The Fed’s December Choice Is Still Open

The central bank held its benchmark federal funds rate at a target range of 3.75% to 4% at its October 27-28 meeting. The decision passed by a 10-2 vote, with Governors Lisa Cook and Beth Hammack preferring a quarter-point increase. Waller supported the majority in waiting, arguing that earlier communication about likely tightening had already pushed financial markets toward expectations of higher rates.

His reasoning creates a constraint for December. If policymakers repeatedly signal increases without eventually delivering them, expected borrowing costs could fall, loosening financial conditions before inflation is under control. Waller therefore views following through on credible policy guidance as part of maintaining the Fed’s effectiveness. His own stated preference remains a 25-basis-point increase if the inflation picture develops as he anticipates.

From the present target range, a quarter-point move would lift the benchmark to 4% to 4.25%; a half-point move would take it to 4.25% to 4.5%. Neither outcome is locked in. Waller speaks for himself, and his remarks explicitly do not represent a decision by the full committee. The case for the larger increase will depend on how officials assess the October CPI report alongside incoming economic information and the risks of tightening too much or too little.

Several scheduled releases will shape that assessment. The Bureau of Economic Analysis is due to report October PCE inflation on November 25, and the next monthly employment report is scheduled for December 4. Fed officials then meet December 8-9, when they are also scheduled to update their economic projections. The November CPI report will not arrive until December 10, a day after the policy decision, leaving October’s consumer-price figures especially relevant to the upcoming meeting.