Waller Backs December Quarter-Point Hike
Ahead of the Federal Reserve's December rate decision, Federal Reserve Governor Waller said Tuesday that even if the upcoming October consumer price index shows improvement, he still leans toward supporting a quarter-point rate hike in December. If core inflation stays above expectations, a half-point hike should even be considered. He noted that the U.S. economy continues to grow steadily and the job market remains broadly stable, but inflation is still too high, making further monetary tightening necessary. Even if October price gains slow as expected, rates should still be raised to contain inflation.
Core Inflation at 0.3% Could Mean a Larger Hike
Waller said that if core CPI rises 0.3% or more month on month, a stronger rate hike should be considered. If inflation stays high and the Fed raises rates by only a quarter point, it could damage the central bank's credibility in fighting inflation. He also explained that his earlier support for holding rates steady in October was because markets had already priced in rate-hike expectations, but that does not mean the Fed can delay tightening indefinitely. The Fed's policy rate currently stands at 3.75% to 4.00%, and markets widely expect another quarter-point hike at the December 8-9 rate meeting.
Inflation Still Above 2% Target
U.S. third-quarter real GDP grew at an annualized rate of 3.4%, and the October unemployment rate was 4.1%, showing the economy remains resilient. However, the September personal consumption expenditures price index rose 3.7% year on year, with core PCE up 3.1% year on year, both above the Fed's 2% target. In addition, in September more than 70% of core services items rose more than 3% year on year, showing inflation pressures remain broad. Waller also cited AI infrastructure driving up technology equipment prices, along with Middle East geopolitical risks and rising energy transportation and insurance costs, which could keep price pressures alive through 2027. Although U.S. President Trump recently claimed the Iran war will soon end and international oil prices have retreated, the Fed remains vigilant on the inflation outlook.
Treasuries Rise as Gold Falls Below $4,100
As markets await the U.S. October CPI release, the policy-sensitive 2-year Treasury yield was last quoted at 4.6%, with the 10-year at about 4.884%, reflecting continued market reassessment of the Fed's further tightening path. International gold prices came under selling pressure; according to precious metals website Kitco, at 4:40 a.m. Eastern Time on the 10th, spot gold fell to $4,083.2 per ounce, down $56.2, or about 1.36%, touching an intraday low of $4,081, falling below the $4,100 round mark. Because gold itself pays no interest, stronger rate-hike expectations and higher Treasury yields may raise the opportunity cost of holding gold, thereby depressing prices. Chicago Fed President Goolsbee warned on the 9th against letting the economy overheat; Cleveland Fed President Hammack said on the 5th of this month that monetary policy still needs to move toward a restrictive stance to bring inflation back to 2%.