Fed's Waller: Supports a December rate hike, would consider a 50 basis point increase if inflation accelerates

Federal Reserve Governor Christopher Waller said on Tuesday that he supports a rate hike in December and warned that he would support a 50 basis point increase to preserve the Fed's credibility if inflation continues to accelerate. Waller's blunt remarks are the strongest signal yet from a Fed official that policymakers not only need to raise rates in December, but that the magnitude may exceed the 25 basis points expected by the market. Waller said that despite strong economic growth and a stable labor market, inflation remains too high. His policy stance depends on the October CPI data that the Bureau of Labor Statistics (BLS) will release later on Tuesday. "If, as I expect, October inflation shows improvement on a month-over-month basis, I would lean toward supporting a 25 basis point increase in the policy rate," Waller said in a speech in London. "But if the October CPI data released later today are similar to the readings of the past two monthswith core CPI inflation at around 0.3% or even higherthen stronger policy action may be needed," he said. "In that case, I believe a 50 basis point rate hike should be considered at the December meeting." Waller added that under such circumstances, a conventional 25 basis point rate hike would not help win market confidence that the Fed is addressing inflation. "A 25 basis point hike alone would jeopardize our credibility, and that is a risk I am unwilling to take," he said. Fed officials voted 10-2 last month to keep rates unchanged, saying that "accumulating more information" would help determine the appropriate level of policy. Previously, in September, the Fed unanimously decided to raise the benchmark rate by 25 basis points to a target range of 3.75%-4%. Since last month's meeting, several policymakers have publicly emphasized the need for further rate hikes. On Monday, traders expected about an 85% probability of a December rate hike. Data released last week showed strong job growth in October and a slight decline in the unemployment rate. Before the Fed meets again in December, officials will also receive a jobs report and a series of inflation datastarting with the October CPI.