Federal Reserve Board Governor Waller: It is necessary to wait for more economic data before deciding whether to raise interest rates. There are still "ample reasons" to believe that inflation will gradually ease.

Federal Reserve Governor Christopher Waller said on Monday that the current inflation situation in the United States is still concerning, but the Fed should not rush to raise interest rates again in response to the lagging lessons learned from handling inflation in 2021, and should wait for more economic data to assess the inflation trend and its underlying drivers. Waller said in a speech in New York that current inflation pressures are not only coming from tariff and energy price increases, but also being influenced by factors such as demand expansion driven by artificial intelligence (AI) investment, which is one of the important reasons why inflation has been consistently above the Fed's 2% target. However, he emphasized that the Fed needs to avoid "repeating mistakes." "I am well aware of the mistakes we made in not responding timely to high inflation in 2021, and I am determined to avoid making the same mistakes again," Waller said. "But that doesn't mean that we should immediately raise rates in the face of current inflation pressures." Waller believes there are still "ample reasons" to believe that inflation will gradually fall in the future, but there is also a "completely reasonable" scenario in which inflation remains high or even rises further, necessitating further tightening of monetary policy in the short term. He pointed out that the Fed is currently evaluating multiple factors driving inflation, including tariff policies implemented in 2025, energy price increases due to the situation in the Middle East, and demand spillover effects from AI investment. "We cannot tighten policy too early just because our last action was too slow, but we also cannot repeat the mistakes of 2021-2022 by acting too late in responding to inflation." However, Waller believes that the Fed currently has two favorable conditions compared to the previous round of inflation: the labor market remains strong and has not become a major driver of inflation, and long-term inflation expectations overall remain stable, with at least market indicators showing public confidence in long-term inflation. Despite this, he warned that policymakers should not be complacent. "I often hear people say that as long as inflation expectations remain stable, central banks do not need to respond to inflation above target levels. This view is incorrect," Waller said. "Simply waiting for inflation to fall back on its own is not a viable policy choice." As Waller spoke, the Bureau of Labor Statistics (BLS) is set to release the June Consumer Price Index (CPI) on Tuesday. Economists surveyed by Dow Jones expect the overall CPI to decrease by 0.2% month-on-month in June, mainly due to a significant drop in international oil prices, while the core CPI (excluding food and energy) is expected to increase by 0.2% month-on-month. Year-on-year, the overall CPI growth rate is expected to decrease from 4.2% in May to 3.8% in June, while the core CPI year-on-year growth rate is expected to decrease from 2.9% to 2.8%. Waller said that if core inflation data does indeed fall back, he would welcome it, but considering the continued rise in inflation in the first half of this year, he would still need to see several months of improvement to confirm that inflation has returned to the right track. "If future data aligns with this assessment, I believe maintaining the current interest rate target range will still be the appropriate policy choice." According to the CME FedWatch tool, the market currently expects a 39% probability of the Fed raising interest rates at the end of July.