Fed Governor Warns of Bigger Rate Hike as Inflation Data Shows “No Silver Lining”

Federal Reserve Governor Christopher Waller delivered a notably blunt assessment of the U.S. economy on November 10th, telling attendees at the Bank of England Watchers Conference in London that September’s inflation figures were bad, full stop. Personal Consumption Expenditures (PCE) inflation, the Fed’s preferred gauge, rose 0.5% for the month and 3.7% over the year, nearly double the central bank’s 2% target. Waller’s remarks also touched on labor market dynamics, GDP growth, and oil price pressures tied to tanker traffic near the Strait of Hormuz, painting a picture of an economy growing on the surface while showing cracks underneath.

Waller noted that real GDP grew at an initial estimate of 3.4% in the third quarter, lifted by consumer spending and business investment in AI-related high-tech equipment. The labor market, meanwhile, has settled into what he called a “low hire, low fire” pattern that has persisted for more than a year, an arrangement he described as unusual and possibly unprecedented. He questioned whether a stable labor market is the same thing as a healthy one, pointing to the share of long-term unemployed (those out of work 27 weeks or more) climbing from about 18% at the end of 2022 to more than 27% through September 2026. Young and new entrants to the workforce are also struggling disproportionately, with their share of unemployment nearing two-decade highs.

On the inflation front, Waller said core PCE, which strips out food and energy, rose 0.3% in September and sits at 3.1% year-over-year. More concerning to him was the breadth of the problem: over 70% of core PCE service price components posted annual increases above 3%, undercutting the idea that price pressures are confined to a handful of volatile categories. Fed researchers have also flagged Institute for Supply Management survey data showing input costs, particularly for high-tech products, rising ahead of official inflation readings earlier this year.

Waller said he would support a 25 basis point hike at the Fed’s December meeting even if October inflation data, released later the same day as his speech, shows some improvement. But he went further, stating that if core inflation comes in around 0.3% or higher, matching recent trends, the Committee should consider a 50 basis point move instead. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” he said. New Fed research cited in his remarks also suggests oil price shocks may pass through to core inflation more persistently than previously modeled, with Waller pointing to elevated tanker traffic through the Strait of Hormuz, driven by rising insurance costs and ship-to-ship transfers to avoid Iranian attacks, as adding an estimated $20 to $30 per barrel to oil prices.

The timing is notable. Just days before Waller’s speech, gold touched a high of $4,077 per ounce. As Peter Schiff put it on a recent episode of his podcast, the puzzle is why, given a supposedly strong economy and inflation running hot, the Fed has not simply raised rates already. Waller’s remarks suggest that question is now dividing policymakers from within, not just critics from without.