Fed Governor Waller Warns Higher Interest Rates Possibly Needed as Inflation Stays Hot

Federal Reserve Governor Christopher Waller told the New York Association for Business Economics on Monday that core PCE inflation rose from 3 percent in December to 3.4 percent in May, and that headline PCE hit 4.1 percent over the same 12 months, up from a 2.8-2.9 percent range last fall 1. Waller said tariffs, Middle East-driven energy costs, and AI-related demand spillovers are pushing core goods and services prices higher, with nearly 70 percent of core services categories now running above 3 percent inflation on a 3- and 12-month basis 1. He said the Fed faces two "equally plausible" paths: inflation resuming its decline toward the 2 percent target under current policy, or persisting at elevated levels and requiring tighter policy. He cited the 2021 delayed response as a mistake he intends to avoid repeating 12. Waller said the labor market remains close to maximum employment and is not itself a source of inflationary pressure, and CNBC reported he called for waiting on additional data, including Tuesday's June CPI release, rather than raising rates preemptively 2. Markets were pricing about a 39 percent chance of a rate increase at the Fed's late-July meeting, according to CME Group data cited by CNBC 2.