Fed December Rate Hike: Waller’s 0.3% Test Was Met, and the Vote Rests on Stale Data

At 9 a.m. in London on Tuesday, Christopher Waller published the number that would change his vote. At 1:30 p.m. London time, the Bureau of Labor Statistics printed it. October CPI core inflation rose 0.3 percent, the exact figure the Federal Reserve governor had named four and a half hours earlier as the line for considering a half-point rise in December. The unrounded figure was 0.296 percent. It cleared his test by four-thousandths of a point.

Waller had written the condition down before the data existed. “In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” he said in the speech, published by the Federal Reserve Board at 09:00 GMT. His base case was a quarter point even if October improved. The larger move was for a number like the one that arrived. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.” He had opened the same speech by saying of September’s data, “Let’s just say it. September’s inflation data were bad. There was no silver lining.”

Waller voted to hold rates at the October 28 meeting because markets had already priced in tightening, and he argued that what matters after such a signal is delivery. “If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall.”

Two of the twelve voters were already there on October 28. The committee held the target range at 3.75 to 4 percent by 10 to 2, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of a quarter-point rise at that meeting. It was the first time since October 1992 that a governor and a regional bank president dissented on the same side, and Cook’s first dissent since she joined the Board in 2022. Six weeks earlier the same committee had voted 12 to 0. Dallas Fed President Lorie Logan, speaking on Tuesday morning, said the Fed needs at least two more quarter-point hikes.

October CPI core inflation rose 0.3 percent for the third month in a row, against a forecast of 0.2 percent, and headline prices rose 0.4 percent against 0.3 percent expected. Three months at 0.3 percent compounds to roughly 3.7 percent a year for core prices, nearly double the Fed’s 2 percent target. Shelter rose 0.3 percent and accounted for more than 30 percent of the monthly increase, food rose 0.5 percent, and energy rose 0.7 percent after September’s 5.2 percent jump.

The bureau published no 12-month inflation rate for October, because it never collected October 2025 prices during last year’s lapse in appropriations. The last annual reading anyone has is September’s: headline 3.7 percent, core 2.6 percent. The one annual figure that survived is gasoline, up 37.4 percent over the year. So the committee that votes in December will do it without knowing what annual inflation was in the month it is judging.

November’s CPI lands on December 10, the morning after the meeting ends. The October PCE report and the second estimate of third-quarter GDP arrive on November 25, and the November jobs report on December 4. The FOMC December 8-9 meeting carries new economic projections. October’s figures are the last inflation print the committee gets, and the last measure it trusts most, the PCE index, will be judged on October data too. Goldman Sachs now tracks October core PCE at 0.35 percent and Bank of America at 0.32 percent. Both would meet Waller’s threshold as well.

Gold fell 36 dollars in the 90 minutes after Waller’s 4 a.m. Eastern speech, and the odds of any December hike repriced from 76.3 percent to 96.3 percent on CME FedWatch. After the CPI release, gold fell to 4,039.72 dollars, Bitcoin slipped below 74,000 dollars, and the two-year Treasury yield rose as much as 19 basis points. CME FedWatch December hike odds now show no chance of a hold, 84.7 percent for a quarter point and 15.3 percent for a half point, up from 1.1 percent before the data. Traders price 28 basis points of tightening for December, up from 21 on Monday, and 63 basis points through December 2027. Deutsche Bank added a January hike to its call, expecting quarter-point moves in December, January and March.

A Fed December rate hike is now priced as certain. The only open question is its size, and the people arguing about that question are not the ones paying for it. “Just a brutal report. Shelter, food, and energy all continue to drive overall inflation, and they’re the costs virtually no one can escape,” wrote u/Barnyard_Rich on r/Economics on Tuesday. Another poster, u/Productpusher, who says he runs a large food and distribution company, wrote that “we are getting a new wave of manufacturer price increases every week” and that “nothing is really done to fix it.” His pipeline matches the Fed staff analysis Waller himself cited, that more producer price increases lie ahead. u/african_cheetah put the objection the officials never answer: “Fitting supply side inflation by raising rates means consumers get further into crunch. All of this is one reason. Price of gas.” And u/TheTimberFactory wrote, “The people who haven’t gotten any substantial raises in the past two years aren’t going to like this.” The bureau’s own release backs his sentence. Real average hourly earnings were unchanged from September to October.

Waller argues the Fed must hike to protect its credibility. The voices in the threads argue the hike lands on people whose wages did not move and whose unavoidable costs did, and that the tool does not reach the shelter and energy prices driving the number. Nothing in the October report answers them. Shelter, food and energy were the three largest drivers of the monthly rise, and the rate the Fed sets does not build a house or pump a barrel.

A half-point rise in December would be the first since December 14, 2022, when the Fed stepped down from four consecutive 75-point increases to 50. That cycle raised rates 425 basis points in nine months. The December meeting carries new economic projections. In September, the median policymaker put the federal funds rate at 4.1 percent for the end of this year, and four of the highest projections would now need a half-point move to be right.