Federal Reserve Governor Christopher Waller, a swing vote on the central bank's rate-setting committee, said he would closely monitor Tuesday's inflation data to determine whether interest-rate hikes are needed.

In prepared remarks on Monday for the New York Association for Business Economics, Waller said he remains concerned about the elevated pace this year of core inflation, which excludes food and energy prices.

Although the Fed doesn't target core inflation, Waller noted that when energy or food is having an outsize effect on overall prices, core is a good measure to help understand the underlying drivers.

The core personal consumption expenditures rate steadily moved up well before the oil price shock, from 3% in December 2025 to 3.4% in May. Waller credits three factors as the main drivers: tariffs, energy prices, and spillover from demand for the artificial intelligence infrastructure.

"Core inflation is a good guide to future inflation. I am concerned that, if this upward trend continues, it will be hard to push inflation back toward the committee's 2% goal with monetary policy at its current setting," Waller said.

It isn't clear at this point, however, whether core inflation will continue on its upward trajectory or if it has reached a turning point, Waller said, adding that the latest inflation report will be critical tool in determining the direction of rate policy in the near term.

The Bureau of Labor Statistics will release the consumer price index data on Tuesday at 8:30 a.m. Economists broadly expect to see a lower annual headline print of 3.8%, compared with 4.2% in May. But core inflation is expected to remain steady at 2.9% year over year in June.

"I don't take the inflationary signals I have discussed today lightly. If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term," Waller added. Even if core CPI was softer in June, Waller said after the escalation in recent months, he would need to see several months of lower readings to feel that inflation is moving in the right direction.

There is still a credible case for inflation to begin returning to the Fed's 2% target without raising rates, Waller said. And he noted there are some crucial differences in the current economic conditions now compared with 2021, including the fact that the current labor market isn't nearly as tight. Additionally, current inflation expectations still seem well-anchored.

"But it doesn't mean we can be lackadaisical in responding to inflation that is well above target and headed in the wrong direction," Waller warned.

The inflation data in the coming weeks could very well show price growth will remain at its elevated level or even trend higher. Core intermediate goods prices tracked in the producer price index, for example, have been remarkably firm in recent months and could feed into consumer inflation.

A higher, or even steady, pace of core inflation would require the Fed to tighten monetary policy in the near term to bring down inflation, Waller said.

Waller acknowledged he is aware of the mistake the Fed made in 2021 by not responding sooner to the surge inflation -- and he is determined to avoid repeating it.

But the desire to avoid past mistakes is often the "author" behind new ones, Waller said. "One of the most important jobs of a policymaker is to clearly assess current economic conditions and not just rely on past experience to guide judgments of where policy should be headed."

Write to Megan Leonhardt at megan.leonhardt@barrons.com

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July 13, 2026 14:03 ET (18:03 GMT)

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