In brief

• Fed Governor Christopher Waller supports a rate hike at the December meeting.
• He does not rule out a 50 basis point hike if inflation does not begin to clearly ease.
• October U.S. inflation data, published on Tuesday, will decide the shape of the decision.

The governor wants a quick response

Waller believes that inflation in the U.S. remains at a high level and that the central bank should react quickly, even at the cost of earlier decisions (Guvernér Fedu Waller podporuje zvýšenie úrokových sadzieb, nevylúčil ani rast o 50 bázických bodov – HNonline.sk). In his view, the Fed must act sooner if it is to bring inflation back to its 2 percent target over the medium term. The governor leans toward a rate hike at the December meeting, which will take place on December 8 and 9 (Americký dolár je najvyššie za rok a pol. Silná inflácia mení odhady sadzieb, oslabuje voči nemu aj euro – HNonline.sk).

The size of the hike depends on inflation

Waller favors a 25 basis point hike if inflation in October clearly eases. However, should the data show price growth similar to September or a faster acceleration, the governor allows for a 50 basis point move (Zlato po vyjadreniach predstaviteľa Fedu prudko zlacnelo, trhy rátajú so zvýšením sadzieb – HNonline.sk). He also announces that if core inflation, meaning excluding food and energy, rises by at least 0.3 percent, he will consider that a sufficient argument for a stronger hike.

The market raises the odds of a stronger move

Markets reacted quickly. After Waller's remarks, the price of gold fell by nearly two percent, and investors considered a hike at the Fed's last meeting of the year to be almost certain. Right after the data were published, estimates of the probability of a half-point hike also rose. The dollar strengthened to its highest level in about a year and a half, and yields on short-term U.S. government bonds rose sharply.

The starting point

In recent months, inflation has remained above the target. In September, annual inflation in the U.S. came in at 3.7 percent, compared with 3.4 percent a month earlier.

What's next

October inflation data will be published on Tuesday afternoon, Central European Time. Its result will determine whether the Fed raises rates by 25 or 50 basis points.

Read also

• Goldman przewiduje kolejną podwyżkę stóp Fed w marcu po gorących danych o inflacji
• Williams z Fedu: inflacja jest za wysoka i musi wrócić do celu 2 proc.