Federal Reserve signals data-driven stance on inflation as Waller says rate hikes remain possible

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Fed data-driven inflation stance

Highlights

Waller states the Federal Reserve will wait for additional data before deciding on further rate hikes, with policy risks remaining balanced.
Waller cites tariffs in 2025, higher energy prices from Middle East conflict, and AI-driven demand as ongoing inflation drivers complicating the outlook.
Markets price a 39% chance of a Fed rate hike at the late July meeting, pending June CPI data estimated to lower headline inflation to 3.8%.

Inflation drivers and policy outlook before July meeting

As reported by CNBC, Waller says the central bank should wait for more data before deciding whether higher interest rates are needed, even as he warns that tighter monetary policy could still be required in the near term. Speaking in New York on Monday, he says officials must balance the risk of moving too quickly against the risk of waiting too long, after the Fed was criticized for responding too slowly in 2021 and 2022.

He says there is still a credible case for inflation to begin falling again, but adds that an equally plausible scenario is one in which price growth stays elevated or rises further. Waller points to tariffs implemented in 2025, higher energy prices linked to fighting in the Middle East, and demand spillovers from artificial intelligence as key forces shaping the current inflation picture.

Waller also says the Fed benefits from a stronger labor market that is not acting as a meaningful source of inflation and from market-based inflation expectations that remain well anchored. Still, he cautions that policymakers cannot become complacent simply because expectations have stayed stable.

June CPI data and market expectations

The remarks come a day before the Bureau of Labor Statistics releases its June consumer price index reading, a report that could influence expectations ahead of the Fed's next decision. Economists surveyed by Dow Jones expect headline CPI to decline 0.2% for the month, helped by a sharp drop in oil prices, while core inflation excluding food and energy is seen rising 0.2%.

On an annual basis, those forecasts would bring headline inflation down to 3.8% from 4.2% in May and core inflation to 2.8% from 2.9%. Waller says he would welcome a softer core reading, but adds that he needs to see several months of lower inflation data before concluding that price pressures are moving decisively in the right direction.

If that pattern emerges, he says he would continue to hold the policy rate at its current target range. The Fed meets again in late July, and markets are pricing in about a 39% chance of a rate increase, according to CME Group.

In our earlier coverage of the sharp drop in commercial shipping through the Strait of Hormuz, we explained how escalating U.S.-Iran fighting pushed vessels to reroute and raised fresh risks to crude flows. We also noted that the disruption around this key oil chokepoint added uncertainty for energy trade and quickly fed into oil-market risk pricing as traders assessed the potential for supply shocks.

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