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.
