Waller says the Fed should not be ‘fighting the last battle’ on inflation but warns that hikes are still possible.
Christopher Waller, governor of the US Federal Reserve, during the Federal Reserve’s Payments Innovation Conference in Washington, DC, US, on Tuesday, Oct. 21, 2025.
Aaron Schwartz | Bloomberg | Getty Images
Federal Reserve Governor Christopher Waller on Monday expressed concern about rising rates but warned against “fighting the last fight,” saying the central bank should wait for more information before raising interest rates.
In a speech in New York, Waller said that inflation has grown more than the most commonly cited driver of rising energy costs. Instead, he cited other factors, particularly artificial intelligence, as the main reasons why inflation has held stubbornly above the Fed’s 2% target.
Waller warned that “the desire to avoid the mistakes of the past is often the originator of new mistakes.”
“I see the mistake we made in 2021 by not reacting quickly to the price increase we see, and I am determined to avoid repeating it,” he said.
However, he said that does not necessarily mean raising interest rates to end the current rate of inflation.
Waller said there was still a “credible case for inflation to start to decline” but noted that there was a “consensus” scenario where inflation could remain high or rise, “requiring tighter monetary policy in the near term.”
The policymaker emphasized a deliberate approach as policymakers examine the causes of inflation, which he listed as tariffs introduced in 2025, rising electricity prices linked to fighting in the Middle East – and “demand evolution” from artificial intelligence.
“As usual, we must avoid making the mistake of fighting the last war and quickly strengthen inflation, just because we waited a long time last time,” he said. “But we must also avoid repeating the same mistake we made in 2021 and 2022 by waiting too long to respond.”
Waller cited two factors working in the Fed’s favor at this time: a strong labor market that is not a logical source of inflation, and entrenched inflation expectations, at least by market-based measures.
However, he cautioned against complacency.
“I often hear people saying that because inflation is expected, bankers should not be responsible for the inflation that was set. This idea is wrong,” he said. “Watching inflation melt away before we wither is not an option.”
Waller’s comments come a day before the Bureau of Labor Statistics releases its June reading on the consumer price index. Economists polled by Dow Jones expect the gauge to show a 0.2% month-on-month drop in the headline reading of all things, due to a sharp drop in oil prices, and a 0.2% core increase excluding food and energy. For the year, that would drop the headline reading to 3.8%, from 4.2% in May, and the core to 2.8%, from 2.9%.
“I would be very happy to see a lower reading for core inflation, but after it spiked in the first half of this year, I would need to see a few months of lower readings to feel that inflation is moving in the right direction,” Waller said. “For the reasons I set out today, I think that is still a reasonable outcome, and I will continue to hold the policy rate at the current target level.”
The Fed meets again in late July, with markets pricing in about a 39% rate hike, according to CME Group.
