Waller expects that the dot plot for 2027 may reflect a path of rate increases at the beginning of the year, followed by rate cuts, and stated that investments in AI infrastructure and energy shocks make inflationary pressures more persistent, while the U.S. economy is strengthening in the second half of the year.

Written by: Li Jia, Wall Street Watch

Federal Reserve Governor Waller stated that the Federal Reserve still needs to raise interest rates further to drive inflation back to the 2% target, but rate hikes do not need to occur at consecutive policy meetings; officials can flexibly seize opportunities based on economic data.

According to Bloomberg, Waller mentioned at an event organized by the Central Bank of Turkey in Istanbul on Thursday that if economic data continues to meet expectations, he anticipates that further rate hikes will be needed, but these hikes do not have to be scheduled for consecutive meetings and should be completed in a reasonable timeframe.

Waller also indicated that the dot plot for 2027 may reflect a path of rate increases at the beginning of the year, followed by rate cuts later in the year. He pointed out that the prediction released in September shows that the median projection of Federal Reserve officials indicates one more rate hike is needed this year, but when interpreting the 2027 dot plot, it is important to note that some officials' projections may include the possibility of an increase at the beginning of the year followed by cuts later in the year.

The market has currently reduced its bets on another rate hike at the Federal Reserve's meeting this month and shifted more bets to a rate hike in December. The Federal Reserve unanimously voted to raise rates by 25 basis points last month, marking the first hike since July 2023.

Inflation Pressures Remain High, Economy Strengthening in the Second Half

Waller stated that the rate hike in September was not determined by a single data point but rather the result of a series of signs indicating that inflation has consistently remained above the target. Recently, inflation accelerated, and with inflation likely exceeding the 2% target for five and a half consecutive years, this may lead consumers, investors, and businesses to raise their expectations for future inflation.

He also noted that investments in AI infrastructure expansion and ongoing energy shocks may make inflationary pressures more persistent.

On the economic front, Waller indicated that there is evidence showing U.S. economic activity is strengthening in the second half of 2026, therefore he is not overly concerned that tighter monetary policy will lead to a severe economic slowdown.

Although job growth fell in September, he believes the overall labor market remains "robust and stable."

Waller also mentioned that eight officials expect the federal funds rate to be 50 basis points higher than the current level by the end of 2027.

Regarding policy communication, Waller stated that the Federal Reserve can avoid the commitment constraints posed by forward guidance while improving policy effectiveness by "sending signals" to the market regarding potential policy options.