Fed Governor Waller Calls for Earlier Rate Tightening to Hit 2% Inflation
The warning applies to the Federal Reserve's policy stance and markets, effective immediately as the Fed moves toward additional hikes.
Governor Waller said that, although he voted to hold the policy rate steady at the most recent Federal Open Market Committee meeting, further tightening of monetary policy will be needed, sooner rather than later, to return inflation to a 2 percent path in the medium term. He argued that clear, credible communication has already priced in some tightening, but that the promised hikes must be implemented in a reasonable period of time.
He noted that real gross domestic product rose 3.4 percent in the third quarter, supported by strong consumer spending and robust investment, especially in high-tech equipment tied to the artificial-intelligence buildout. He expects growth to back off as consumer spending slows, but said output will continue at a solid pace. The unemployment rate ticked down to 4.1 percent in October, with October gains of 165,000 jobs and 85,000 jobs added in each of the two preceding months; the six-month and twelve-month average payroll gains have been closer to 80,000 jobs a month.
Waller described the labor market as "low hire, low fire," noting that both separation and hiring rates have been persistently low compared with pre-pandemic levels. He highlighted that, despite low rates, the absolute volume remains large - more than 5 million people left their jobs and more than 5 million were hired in September, while net job creation that month was 60,000.
He raised questions about whether a stable labor market is necessarily healthy, pointing to longer-run trends such as an aging workforce and an increase in the share of adults with at least a bachelor's degree from 28 percent to 37 percent since 2010. He also cited heightened uncertainty since early 2025 - AI, tariffs, immigration policy - and evidence from the November 2025 Beige Book that employers reported unusually restrained hiring.
Waller warned that low hiring may lengthen unemployment spells, noting that the percentage of unemployed people looking for work for more than six months has climbed steadily since 2022. He added that the share of new labor-force entrants in unemployment has risen to near the highest levels of the past twenty years, a dynamic that could influence the Fed's policy outlook.
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