All futures traders now price in a December hike, with Waller warning inflation breadth could force a 50-basis-point move
Federal Reserve Governor Christopher Waller put a December rate increase firmly on the table and raised the possibility of a half-point move.
Speaking at the Bank of England Watchers Conference in London, Waller said he would back a 25-basis-point hike at the Federal Open Market Committee’s (FOMC) December 8–9 meeting even if inflation showed some improvement over September’s pace.
He went further, warning that if core consumer price index (CPI) data came in at 0.3% month-over-month or higher, a half-point move would have to be considered.
“While I am hoping for an improvement over September, even if this occurs, I would still support a 25 basis point increase in the FOMC’s policy rate at our December meeting,” Waller said.
Hours later, Waller’s concern was validated. October CPI showed core inflation stuck at 0.3% for a third consecutive month, precisely the threshold he had flagged.
Rate hike odds immediately jumped to 100%, with futures markets pricing in an 89% chance of a quarter-point increase and an 11% probability of a half-point move, according to CME FedWatch data.
The remarks carry real weight for loan officers and brokers in rate-sensitive markets. The Federal Reserve raised rates in September for the first time since 2023, moving the target range to 3.75% to 4%.
Mike Fratantoni of the MBA, Seema Shah of Principal Asset Management, Eric Orenstein of Fitch Ratings, and Barry Habib of MBS Highway say robust employment data is reinforcing expectations for tighter monetary policy heading into 2027. https://t.co/CSQ8hikcCX
— Mortgage Professional America Magazine (@MPAMagazineUS) November 6, 2026
Inflation breadth driving the concern
September’s personal consumption expenditures (PCE) inflation registered 3.7% year-over-year, with core PCE at 3.1%, well above the Fed’s 2% target.
More than 70% of core PCE services components recorded 12-month gains above 3%.
Bank of America now projects three consecutive hikes totaling 75 basis points before year-end.
Waller flagged the AI construction boom and elevated energy costs as inflation drivers unlikely to ease.
Fed staff research suggested energy shocks may now pass through to core prices more persistently than in the pre-pandemic era, potentially lasting well into 2027.
“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” Waller said.
“Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”
Read more: Fed’s Daly signals more rate hikes
Credibility on the line
Waller defended October’s hold decision, arguing that forward guidance had already done meaningful work in tightening financial conditions, but only if the Fed followed through on its commitment.
“If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way,” he said.
“So, while the precise timing of the hikes doesn’t matter, ensuring that the promised hikes are implemented in a reasonable period of time does.”
His remarks were the first from a Fed official to publicly float a 50-basis-point December move.
Dallas Fed President Lorie Logan has separately called for at least two more 25-basis-point increases.
At October’s meeting, Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of an immediate quarter-point hike, signaling a hawkish wing of the committee growing impatient with the pace of tightening.
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