HIGHLIGHTS Chris Waller said he would support a 25 basis point rate hike at the December FOMC meeting. He also mentioned that he could back a 50 bps hike if the October CPI data comes in hot. Polymarket data shows an almost 90% chance the Fed will hike rates. Federal Reserve Governor Chris Waller said he would support a Fed rate hike at the December FOMC meeting, regardless of whether upcoming inflation data shows improvement. He also raised the possibility of supporting a 50-basis-points (bps) hike if the inflation data comes in hotter than expected.

Chris Waller To Back Fed Rate Hike In December

In a speech delivered in London, Waller said that he would support a 25 bps rate increase at the December FOMC meeting even if the October CPI inflation data shows an improvement. "However, if inflation comes in substantially higher than I expect, more robust action by the FOMC may be called for," he added.

This statement came as he noted that the labor market appears to be stable, while inflation, on the other hand, is running well above the Fed's 2% goal. As such, he believes the FOMC needs to raise rates to curb rising inflation.

The Fed governor also mentioned what could warrant considering a 50 bps hike. He said this would happen if the October core CPI reading is similar to the last two monthly readings at 0.3% or comes in higher.

"Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," Waller said in reference to the October CPI inflation coming in hotter than expected. It is worth noting that the Fed held rates steady at the October FOMC meeting, following a Fed rate hike at the September meeting. The Fed governor explained that he supported the decision because he didn't see a need to hike at two consecutive meetings.

Why Inflation Could Remain Elevated

In his speech, Waller also gave reasons he expects energy prices to remain elevated. First, he highlighted the price tankers pay to move oil through the Strait of Hormuz, noting that these ships are paying for higher insurance and taking other measures to guard against Iranian attacks.

As a result, the Fed governor noted that oil prices are now higher by up to $30 per barrel. Second, he said diesel production has slowed because of limited refinery capacity and other constraints. As such, he opined that diesel prices in the U.S. are unlikely to moderate as quickly as crude oil prices would in a more peaceful Middle East region.

Amid Waller's statement, crypto traders are already increasing their bets on a December Fed rate hike. Data from the top crypto prediction market platform Polymarket shows an almost 90% chance that the FOMC will raise interest rates at its next meeting.