The likelihood of the Federal Reserve raising interest rates for a second consecutive time this month has diminished, following remarks from Fed Governor Christopher J. Waller indicating flexibility in the timing of future increases. Speaking at an event in Istanbul on Thursday, Waller underscored the central bank’s ongoing commitment to reducing inflation to its 2 percent target but suggested that rate hikes need not occur at every upcoming policy meeting.
Waller acknowledged that "additional hikes" will be necessary to expedite the return of inflation to the desired level but emphasized that these moves "do not need to come at consecutive meetings." He added that any rate increases should occur within a reasonable timeframe but need not be immediate, signaling a more measured approach amid evolving economic conditions.
The comments come as market expectations for an imminent rate hike have cooled sharply. Just two weeks ago, investors assigned roughly a 70 percent probability to a second consecutive increase at the Federal Open Market Committee (FOMC) meeting scheduled for late October. However, expectations have since fallen to near 20 percent, influenced in part by recent speeches from other Fed policymakers—including New York Fed President John C. Williams and Vice Chair Philip N. Jefferson—who have advocated for a more patient approach following the unanimous decision to raise rates in September.
Waller explained his shift to supporting the September rate increase by citing a range of inflationary risks and improvements in labor market stability that emerged over the summer. These factors included the ongoing war involving Iran, which contributed to higher oil and commodity prices, as well as inflationary pressures linked to increased investment in artificial intelligence technologies and the possibility of new tariffs under the Trump administration.
He noted that when inflation data for August showed an unexpected acceleration just before the September FOMC meeting, it became clear that inflation remained elevated and progress toward the target insufficient. Waller emphasized that inflation continues to be his primary concern, particularly the risk that consumers might doubt the Fed’s resolve to achieve price stability.
Despite his focus on inflation, Waller expressed confidence that tighter monetary policy would not precipitate a severe economic downturn, given indications of strengthening economic activity in the latter half of the year.
The Fed governor also addressed the debate over how the central bank should communicate its policy intentions. Waller advocated for transparent signaling to avoid surprising markets and creating volatility, contrasting with Chairman Kevin M. Warsh’s preference for a more cautious approach that limits explicit guidance. Warsh has argued that detailed forward guidance restricts the Fed’s flexibility and has initiated a review of the bank’s communication strategy as part of a broader effort to implement what he calls “regime change.”
Waller warned that lack of clarity could result in markets mispricing the number of potential rate increases, thereby diluting the intended impact of monetary policy on financial conditions and economic activity. His remarks highlight ongoing tensions within the Fed over balancing policy transparency with strategic adaptability as officials navigate a complex inflation and economic outlook.