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Fed Governor Waller backs a December hike and is open to 50 basis points after a hot core CPI print, lifting fed rate bets to about 15% for a half-point move.
- Waller backs at least a 25 bp hike at the December 8-9 FOMC meeting, even if inflation cools somewhat.
- Odds of a 50 bp hike rose from 0% to about 15% after October core CPI matched his 0.3% threshold.
- The 10-year Treasury yield rose 11 bp to 5%, and the S&P 500 fell 0.6% to 7,502.
Lead
Federal Reserve Governor Christopher Waller said Tuesday he will support at least a quarter-point fed rate increase at the December 8-9 policy meeting. He added that a 50-basis-point move should be considered if core inflation stays hot. Futures pricing for a half-point hike jumped from zero to about 15% within hours, while a quarter-point increase is now priced as a near certainty.
What Did Waller Say About a December Rate Hike?
Waller said he would back a 25-basis-point hike in December even if October inflation improved from September's pace. Speaking in London at the Bank of England Watchers Conference, he said a core CPI reading of about 0.3% or higher, in line with recent months, would mean a stronger policy move may be needed. He also warned that a smaller increase in that case would put the Fed's credibility at risk.
Waller's remarks were the first from a Fed official to publicly float a half-point increase for December. Dallas Fed President Lorie Logan also signaled readiness to move higher and faster on sticky inflation.
Did October CPI Meet Waller's Threshold?
October core CPI met Waller's threshold. Consumer prices rose 0.4% on the month against a 0.3% consensus, and core prices, which exclude food and energy, rose 0.3% against an expected 0.2%. The Bureau of Labor Statistics did not publish an annual rate for October because last year's government shutdown disrupted data collection.
The release arrived hours after Waller spoke and confirmed the condition he had set. CME FedWatch pricing moved to roughly 85% to 89% for a 25 bp hike and 11% to 15% for 50 bp. The probability of some hike at the December meeting reached 100%, up from 84% a day earlier.
Why Did Markets React This Way?
Markets reacted sharply because the data and the Fed commentary pointed the same way, toward faster tightening. The 10-year Treasury yield rose 11 basis points to 5%. A higher yield raises borrowing costs across the economy and lowers the present value of future corporate earnings.
Equities fell. The S&P 500 lost 48 points, or 0.6%, to 7,502, and the Dow Jones Industrial Average dropped about 240 points, or 0.5%, to 52,150. Shares of Nvidia (NVDA) fell roughly 5.8%, a sign that rate-sensitive, high-valuation technology names bore much of the selling.
How Does This Affect the Fed's Next Move?
The decision now centers on the size of the hike rather than whether it happens. Waller's stated preference is still 25 basis points, which keeps that outcome as the base case. A half-point move would require further confirmation that core inflation is not slowing.
The November data that arrive before the December meeting will carry more weight. That includes the next consumer price report and producer prices. Officials have signaled they will respond to the incoming numbers, and a third consecutive 0.3% core reading has narrowed the room for a pause.
What It Means for Interest Rates
Higher interest rates feed through to mortgages, corporate borrowing and the cost of servicing public debt. A 5% 10-year yield sets a higher benchmark for long-dated loans. Money-market and savings yields tend to follow short-term policy moves, while borrowing costs tied to the prime rate rise with each hike.
Outlook
Waller's backing of a December increase, with 50 basis points on the table, shifts the debate inside the Fed toward the pace of tightening. A quarter-point hike is the market's central expectation, with about a 15% chance of a larger move. The next inflation prints will determine whether the half-point scenario gains support before the December 8-9 meeting.
Mentioned tickers: NVDA
