Waller Says Fed Should Consider a Half-Point Hike in December After Core CPI Hits 0.3% for Third Straight Month

Since the Fed raised rates a quarter point in September and then held at 3.75% to 4% in October, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of a hike, the argument inside the central bank has shifted from whether to tighten again to how fast. The October consumer price report, released Tuesday, Nov. 10, pushed that argument into the open.

The data

The Consumer Price Index rose 0.4% in October, according to the Labor Department. That is down from 0.6% in September as energy inflation eased.

Core prices, which strip out food and energy, rose 0.3% for the third month in a row. Economists polled by Reuters had expected 0.2%.

Gasoline rose 1% on the month, which the Labor Department tied to the war with Iran and reduced crude shipments. Grocery prices rose 0.4% and restaurant prices 0.5%. Shelter rose 0.3% and accounted for more than 30% of the overall increase.

The Labor Department did not publish a 12-month CPI figure. Last year's federal government shutdown disrupted data collection, the department said.

Waller sets a trigger

A few hours before the report, Waller told a conference in London that he would back a quarter-point hike at the Dec. 8-9 meeting. But if core CPI came in at 0.3% or more, he said, "a 50-basis-point hike in the policy rate should be considered at the December meeting."

Core CPI then landed on that threshold.

"Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," Waller said. He added that he is "particularly concerned about the breadth of price increases," pointing to core goods and to core market-based services excluding housing.

That is a shift in tone. In an Oct. 8 speech, Waller said hikes "do not need to come at consecutive meetings."

Logan and Schmid join in

Dallas Fed President Lorie Logan said at an energy conference that it "may be possible to move more rapidly" than the recent pace. She said the Fed needs at least half a percentage point more of tightening before pausing to take stock. Her stated goal is to make policy "modestly restrictive."

Kansas City Fed President Jeffrey Schmid said at a Houston conference that "inflation is top of mind." He added: "I didn't think our rate was restrictive last year, and I believe that today it's fairly accommodative."

Markets react

The two-year Treasury yield jumped 19 basis points to 4.75%, its largest rise since April 2025, when the tariff announcements rattled global markets. The dollar gained against all of its major peers.

Traders did not fully buy a 50-basis-point move. Pricing showed about a 15% chance of a half-point hike in mid-morning, easing to about 10% by late afternoon, according to Reuters. Futures still point to a quarter-point hike in December, with more in January and possibly April. Before the data, markets had priced December and March.

Traders also leaned into three quarter-point hikes by mid-2027, up from two.

Christopher Hodge, chief U.S. economist at Natixis, said the report "is not a print that screams out the need to go 50, but certainly provides ammunition to the argument to do so." Tom Porcelli, chief economist at Wells Fargo, said he expects a unanimous vote for another hike, though the size remains up for debate. "This locks it down," he said of at least 25 basis points.

Waller's call for a larger move is so far an outlier among his colleagues.

The case for patience

Not everyone in Washington wants the Fed to lean harder. Treasury Secretary Scott Bessent said in a CNBC interview after the October meeting that Fed officials "should have an open mind in terms of the transitory nature of the supply shock." His argument is that the inflation run-up mostly reflects energy costs that could fade.

Tuesday's data cuts against part of that framing. Energy inflation did ease in October, but core prices did not.

The jobs picture also complicates the Fed's path. September payrolls rose only 29,000, well below the 90,000 consensus, and unemployment edged up to 4.2%. Jay Woods of Freedom Capital Markets said last month that the debate was "about the pace of tightening, not necessarily its direction."

What comes next

Vice Chair Philip Jefferson and New York Fed President John Williams are scheduled to speak later this week. Williams said in October that he was penciling in one more hike this year and none next year, so his next remarks will show whether Tuesday's data changed that view.

The committee meets Dec. 8-9. By then it will have another round of data, and Waller has already named the number he is watching.