Fed Governor Christopher Waller Signals Possible Near-Term Rate Hikes if Inflation Stays Elevated

On July 13, 2026, Federal Reserve Governor Christopher Waller told the New York Association for Business Economics that the central bank “may need to raise interest rates ‘in the near term’ if coming data show inflation continuing well above the 2 % target.” He emphasized that the Fed should not be “lackadaisical” and warned that a “hot reading on core inflation” this week would force the Federal Open Market Committee to consider tightening policy.

Fed's Waller says higher rates possibly needed in 'near term'Reuters

The Fed has kept its policy rate unchanged since the June 16-17 meeting, where policymakers were evenly split on whether a hike was warranted. Waller framed the current moment as a “crossroads,” contrasting it with the delayed response to the 2021-2022 inflation surge that he described as a past mistake. He cited three drivers of the latest price pressures: tariffs enacted in 2025, rising energy costs linked to the renewed U.S.–Iran conflict, and “spillovers from demand” generated by artificial-intelligence applications. While the labor market remains stable, Waller noted that inflation expectations are still well-anchored, a factor the Fed should not rely on to avoid action.

Fed's Waller says higher rates possibly needed in 'near term'

• Core-services categories, which make up 75 % of core prices, show nearly 70 % with three-month and twelve-month inflation rates above 3 %.

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• Economists expect the June consumer-price index (CPI) to report a headline annual rate of 3.8 % (down from 4.2 % in May) and a core rate of 2.8 % (down from 2.9 %).

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• Financial markets assign roughly a 40 % probability of a rate increase at the July meeting and “overwhelming odds” of a hike by September; the CME Group puts the July-meeting chance at 39 %.

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Waller said the Fed will “lean heavily on inflation data,” beginning with the Tuesday CPI report, and that “several months of lower readings” would be needed before deeming inflation on a sustainable downward path. He praised the Fed’s “well-anchored inflation expectations” but cautioned that this alone does not excuse inaction.

Fed's Waller says higher rates possibly needed in 'near term'

He contrasted his approach with new Fed Chair Kevin Warsh, who “studiously avoids giving away much… about his own ‘reaction function.’” Waller argued for transparency: “You want the markets to have as much information as possible. Surprising people is not a good idea.”

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Waller also discussed internal reforms, supporting the five task forces created by Warsh and proposing to shorten policymakers’ projection horizon from three years to 18 months, with forecasts released a day earlier. Regarding the balance sheet, he expressed no urgency to shrink it but suggested a preference for an all-Treasury composition, joking about an “asset swap for Greenland.”

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Some market participants remain skeptical that another rate hike is necessary, pointing to the expected modest decline in core CPI. Nonetheless, Waller warned that “the desire to avoid past mistakes is often the author of new ones,” indicating that complacency could be as risky as premature tightening.

Fed's Waller says higher rates possibly needed in 'near term'

• “Sternly staring at inflation until it melts before our withering gaze is not an option.” — Christopher Waller

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• “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term," Waller said.” — Christopher Waller

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• “ "You want the markets to have as much information as possible," Waller said on Monday.” — Christopher Waller

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• “I often hear people say that because inflation expectations are anchored, central bankers do not have to respond to above-target inflation. This view is wrong,” — Christopher Waller

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• “the desire to avoid past mistakes is often the author of new ones.” — Christopher Waller

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The Bureau of Labor Statistics will release the June CPI on Tuesday, providing the first data point Waller said will shape the Fed’s near-term decision. The Federal Open Market Committee meets again in late July, with markets already pricing a roughly 39 % chance of a rate increase. A subsequent meeting in September is expected to carry “overwhelming odds” of further tightening if inflation remains above target.

Fed's Waller says higher rates possibly needed in 'near term'