Rate hikes do not need to be conducted at consecutive meetings; the dot plot indicates that after a rate hike in early 2027, rates will be cut again.

Waller anticipates that the 2027 dot plot may reflect a path of rate hikes at the start of the year followed by cuts, and noted that investments in AI infrastructure and energy shocks are making inflationary pressures more persistent, while the U.S. economy is strengthening in the second half of the year.

By: Li Jia, Wallstreetcn

Federal Reserve Governor Waller stated that the Fed still needs to raise rates further to bring inflation back to the 2% target, but there is no need for hikes to occur at consecutive policy meetings, as officials can act flexibly based on economic data.

According to Bloomberg, Waller said at an event organized by the Central Bank of Turkey in Istanbul on Thursday that if economic data continues to meet expectations, he anticipates further rate hikes will be necessary, but these increases do not have to be scheduled at consecutive meetings and should occur within a reasonable timeframe.

Waller also said that the 2027 dot plot may reflect a path of rate hikes at the beginning of the year followed by cuts later on. He pointed out that the projections published in September indicate the median Fed official expects one more rate hike this year, but when interpreting the 2027 dot plot, it should be noted that some officials' forecasts may include hikes early in the year followed by cuts later within the same year.

The market has now lowered its expectations for another rate hike at the Fed's meeting this month and is placing more bets on a hike in December. Last month, the Fed unanimously voted to raise rates by 25 basis points, marking the first rate hike since July 2023.

Inflationary pressures remain high, economy strengthens in the second half of the year

Waller stated that the September rate hike was not decided on the basis of a single data point, but was the result of a series of signs pointing to inflation persistently exceeding the target. Recent acceleration in inflation, along with inflation being on track to exceed the 2% target for a fifth consecutive year, may prompt consumers, investors, and businesses to raise their expectations for future inflation.

He also pointed out that the expansion of investment in AI infrastructure and ongoing energy shocks may make inflationary pressures more persistent.

On the economic front, Waller said there is evidence that U.S. economic activity is strengthening in the second half of 2026, so he is not overly concerned that tighter monetary policy will lead to a severe slowdown in the economy.

Although job growth slowed in September, he believes the labor market as a whole remains "robust and stable."

Waller also mentioned that eight officials expect the federal funds rate to be 50 basis points higher at the end of 2027 compared to current levels.

In terms of policy communication, Waller said that the Fed can avoid the commitment constraints brought by forward guidance while still "signaling" to the market about possible policy choices, in order to improve policy effectiveness.