Federal Reserve Governor Waller stated that the central bank still needs to raise interest rates further to bring inflation back down to its 2% target, but that hikes do not need to occur at consecutive policy meetings, and officials can flexibly time the pace of tightening based on economic data.

According to Bloomberg, Waller said on Thursday while attending an event organized by Turkey's central bank in Istanbul that if economic data continue to meet expectations, he expects further rate increases will be needed, but there is no necessity to tighten policy at consecutive meetings, and the hikes should be completed within a reasonable timeframe.

Waller also offered a judgment on the policy path over a longer horizon. He said the 2027 dot plot could reflect a rate hike early in the year followed by rate cuts. This implies that even if the policy rate is raised further in early 2027, it could later shift back toward easing as inflation and economic conditions change.

Inflation Pressure Remains High, Economy Strengthens in the Second Half

Waller believes inflation is still too high, and that expanding investment in AI infrastructure buildout as well as persistent energy shocks could make inflation pressure more enduring, adding to the difficulty of bringing inflation back to the 2% target. This is also an important reason why he believes further rate hikes are still needed.

The economic fundamentals provide room for continued tightening. Waller said there is evidence that the U.S. economy is strengthening in the second half of 2026. Although new job additions fell in September, the labor market overall remains "solid and stable."

Therefore, Waller's policy judgment does not emphasize consecutive rate hikes, but rather preserves the option for further tightening while inflation remains high and the economy stays resilient, adjusting the timing of action based on data.

On policy communication, Waller said the Fed can avoid the commitment constraints brought by forward guidance, but can still "signal" to the market the policy options it may take to improve policy effectiveness. In other words, the Fed can guide the market to form reasonable expectations about the policy direction while avoiding locking in a specific rate-hike path in advance.

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