Second Fed hike this year expected after Waller backs more tightening

Federal Reserve Governor Christopher Waller said Tuesday that further monetary tightening would be needed sooner rather than later, and traders leaned harder toward a second interest rate increase before the year is out.

Waller made the remarks in a speech in London, according to the text published by the Federal Reserve. He voted with the majority to hold rates steady in October, so his comments pointed toward another increase after September's. Traders expect two hikes this year, the total they already favored. The chance that September's increase stands as the only one of the year slipped further and remains unlikely.

Some traders are looking past two. Bets on exactly three hikes this year, a long shot before the speech, have climbed, though that total is still unlikely. Traders also raised their bets that the top of the Fed's target range will reach 4.5% or higher before 2027, which would take more than one additional quarter-point move. That, too, is still seen as unlikely.

The single-hike outcome had drifted for two weeks without settling. It rose in the days after the Fed's Oct. 28 decision to hold, jumped last Thursday and fell back Friday, the day of the October jobs report. It eased again Monday before dropping sharply early Tuesday, around the time of Waller's speech, to its lowest point in the past two weeks.

The Fed raised its target range by a quarter point in September, its first increase in three years, then held it at 3.75% to 4% on Oct. 28. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented from that hold, favoring another quarter-point increase. Waller's remarks add a voice from the majority to the case for tightening, though they do not commit the committee to act.

The economic data has pointed the same way. The Nov. 6 jobs report showed 165,000 jobs added in October, and Axios reported that futures-implied expectations of a December hike rose slightly after the release, to roughly 76%.

Traders' bets on related questions line up with that view. They expect a quarter-point increase in December and a year-end rate of 4.25%, which would follow from one more quarter-point move on top of the current range.

The October consumer price index was due Tuesday morning, after Waller's speech, and could shape the Fed's reading of inflation. The Fed's final scheduled meeting of the year is Dec. 8-9. A hike at that meeting, or an emergency move before year-end, would bring the 2026 total to two.