Fed Hawks Grow Louder as Waller Raises Prospect of Year-End 0.5-Point Rate Hike

Governor Waller Says Inflation Remains Above Target

Top Officials Signal More Tightening in Succession

Federal Reserve officials involved in setting U.S. interest rates have issued a string of comments signaling further tightening. The need for a “big step” — a 0.5 percentage-point increase in the benchmark rate — was also raised as policymakers seek to rein in inflation. The market’s focus has shifted beyond whether the Fed will raise rates to how far and how quickly it will move. After the hawkish remarks, the two-year Treasury yield posted its biggest jump since April 2025.

Fed Governor Christopher Waller told a conference in London on Nov. 10 that the U.S. economy remains strong and the labor market stable, but inflation is still running well above the central bank’s 2% target. If October core consumer prices rose more than 0.3%, “stronger action” may be needed. He added that policymakers should consider raising the benchmark rate by 0.5 percentage point in December. Data released after Waller’s remarks showed U.S. core CPI rose 0.3% in October, meeting the condition he laid out for a big step.

Other senior Fed officials struck a similarly hawkish tone. Dallas Fed President Lorie Logan said at a conference that the benchmark rate should be raised by at least two more quarter-point moves given the current economic outlook. Fed Governor Michelle Bowman also said there were signs that price pressures were lasting longer than expected and becoming more broad-based.

Treasury yields surged. Reuters reported that the two-year Treasury yield, which is sensitive to expectations for Fed policy, rose 0.1844 percentage point on the day to 4.731%. That was the biggest increase since April 2025, when markets were highly volatile amid President Donald Trump’s tariff policies. The 10-year Treasury yield rose 0.1255 percentage point to 4.988%.

Markets are still not placing high odds on a big step. According to CME FedWatch, traders see an 86.8% chance of a 0.25 percentage-point increase next month and a 13.2% probability of a 0.5 percentage-point move. The reason is that Fed officials are expected to be mindful of the market shock that could accompany a big step. The Fed has not delivered a 0.5 percentage-point increase since December 2022.

Philadelphia Fed President Anna Paulson’s comment that additional “gradual tightening” would be appropriate reflected that mood. Matthew Luzzetti, chief economist at Deutsche Bank, said the Fed would likely prefer a series of 0.25 percentage-point increases to a big step as it tries to balance curbing inflation against overtightening.

Hwang Jung-soo, New York correspondent, Korea Economic Daily hjs@hankyung.com