In a speech to the Central Bank of Turkiye on Thursday, Fed Governor Christopher Waller laid out what he called the “signaling option” for communicating the rate path: policymakers could signal that the policy rate will likely rise a given amount over some interval, say six months, without saying how fast or in what increments, while stressing the course is not predetermined. He contrasted it with saying nothing, which risks markets pricing zero or five hikes and whipsawing financial conditions, and with hard forward guidance, which locks in a path the data may contradict. The Summary of Economic Projections, he said, is already serving that signaling role, and the September dots showed a large majority expecting at least one more hike this year.
The numbers he cited are the market’s current read: as of Wednesday, futures put an 85 percent chance on at least one hike by the December FOMC and nearly 20 percent on two; by the March 2027 meeting, nearly an 80 percent chance of at least two hikes and a 33 percent chance of three or more. Sixteen of the 18 participants who submitted dots anticipate at least one more hike this year, four of them two, and eight participants expect rates 50bp higher at end-2027 than today.
Waller also explained his own vote for the September hike, which came after nine months on hold and followed 75bp of cuts in late 2025 that he described as insurance against a weakening labor market. Hopes faded in 2026 as the Middle East conflict kept oil high, with experts warning prices could stay elevated through 2027 on low inventories and damaged infrastructure, AI buildout costs lifted high-tech consumer prices, and August CPI came in hot. He pushed back on the idea the hike rested on one data point: it was, he said, a preponderance of evidence over several months that the December 2025 to September 2026 setting would not return inflation to 2 percent in a timely manner.
The latest data reinforced his view. August monthly core PCE came in at 0.25 percent, with the 12-month change at 3.0 percent under the revised methodology, stuck between 2.5 and 3.0 percent since the spring of 2024. September payrolls were solid, with unemployment near the median of policymakers’ longer-run projections. “For at least the near term, policy will be focused on the inflation side of our mandate,” he said.