Christopher Waller’s comments opened the door to a potential 50 bp rate hike and were interpreted by markets as clearly hawkish, prompting a modest pullback in S&P 500 futures (US500) and a rebound in U.S. Dollar Index futures (USDIDX). Waller stressed that inflation remains too high, September’s inflation data were unfavorable from the Fed’s perspective, and real interest rates need to rise to maintain an appropriately restrictive monetary policy stance.
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Waller said he would support a 25 bp rate hike in December even if October CPI shows some improvement compared with September.
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Waller added that a 50 bp hike could be necessary if monthly core CPI comes in at around 0.3% or higher.
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In his view, the Fed should at minimum reverse the three previous “insurance” rate cuts.
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At the same time, Waller stressed that the Fed is not considering raising rates by 150–200 bp or deliberately bringing the economy to a sharp halt.
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He described the labor market as solid and close to the Fed’s employment objective, while highlighting the broad-based nature of price increases and the risk that the energy shock could prove more persistent.
U.S. CPI data will be released at 13:30 PM GMT Notably, Waller did not refer to the recent decline in oil prices and therefore did not use the move to soften the overall hawkish tone of his remarks.
USDIDX chart (M15 interval)
Source: xStation5
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