Fed Governor Waller says rates will stay high, no cuts for deficits

Fed Governor Christopher Waller told a UBS conference in Sydney that “rates are going to stay – keep going up” and will remain high until inflation moves closer to the Fed’s 2% target, underscoring that monetary policy will not be used to ease US fiscal deficits【1】.

Inflation cooling but policy stays hawkish

The October consumer price index fell to 7.7% year‑over‑year, a larger‑than‑expected slowdown from 8.2% in September, marking the first notable dip in a 40‑year‑high inflation environment【1】. Even with that moderation, Waller said the Fed still has “a ways to go” before it can consider pausing or lowering rates, echoing Chair Powell’s view that further tightening is likely, though the pace may slow. Futures markets have already priced in a 50‑basis‑point hike at the December meeting, pushing the implied benchmark rate toward a 4.9% peak later this year【1】.

No “easing bias” in the Fed’s forward guidance

Waller also urged the Federal Open Market Committee to strip language that suggests a bias toward rate cuts, joining three regional presidents who voted against the post‑meeting statement that implied an easing stance【2】. He argued that recent inflation data—particularly higher energy and commodity prices after the U.S.–Israel actions in Iran—make any near‑term cut implausible. Waller’s shift from an “easing bias” to a neutral stance signals that the Fed will be ready to raise rates as readily as it would lower them, reinforcing the view that monetary policy will not be used to offset fiscal deficits.

Balance‑sheet limits on rate relief

In a separate discussion, Waller noted that the Fed’s $6.7 trillion balance sheet cannot be shrunk to pre‑pandemic levels without jeopardizing reserve availability, estimating only a $300‑$500 billion reduction is feasible【2】. This structural constraint further limits the central bank’s ability to provide fiscal accommodation through balance‑sheet easing.

What to watch

• FOMC meeting on Dec 12 – market pricing of a 50 bp hike will be tested.
• CPI release for November – another move in core inflation will shape expectations for further tightening.
• Fed’s quarterly projection update (next month) – will reveal revised rate path and balance‑sheet outlook.

Waller’s comments make clear that, despite a modest cooling in consumer prices, the Fed is unlikely to lower rates to help finance US deficits. The next data points and policy meetings will determine whether the tightening trajectory accelerates or merely decelerates.