Fed’s Waller suggests rate hike possible if core inflation remains high

Federal Reserve Governor Christopher Waller has indicated that an interest rate hike might be necessary if core inflation remains elevated, suggesting a potential shift in monetary policy. The federal funds rate is currently set at 3.50%–3.75%, but with core CPI inflation at 3.1% year-over-year as of July 2026, there is ongoing pressure from tariffs and supply shocks contributing to inflationary trends. Waller’s comments mark a departure from his earlier stance that rate cuts could be considered, aligning instead with a data-dependent approach driven by stable labor market conditions and rising inflation expectations. This has led to increased market speculation of a 25-basis-point hike by September 2026, with implied probabilities now around 70%.

Key Takeaways

• Waller’s remarks suggest a potential rate hike if inflation does not align with the Fed’s 2% target.
• Market activity indicates a significant rise in the probability of a September rate hike, now priced at 64.5% YES.
• Recent core CPI figures and supply chain disruptions appear to support scenarios where a rate hike is more likely.

What to Watch

Observers should monitor upcoming inflation reports and Federal Reserve communications for further indications of policy direction. Any additional comments from Fed Chair Jerome Powell or shifts in FOMC projections could impact market pricing. A continued rise in core inflation or labor market tightening may further solidify expectations of a rate hike by September.

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Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.