(Nov 10): Federal Reserve governor Christopher Waller on Tuesday said he supports an interest-rate hike in December, and warned that if inflation continues to accelerate he would support a half-percentage-point increase to protect the central bank’s credibility.

The blunt outlook from Waller is the strongest argument yet from a Fed official that policymakers not only need to raise rates in December, but may need to do so by more than the quarter point that markets expect.

Describing the economy as strong and the labour market as stable, Waller said inflation remains too high. He then hinged his policy prescription on consumer price inflation data for October that the Bureau of Labor Statistics will release later on Tuesday morning.

“If, as I expect, the monthly rate of inflation improves in October, I am leaning towards supporting an increase in our policy rate of 25 basis points,” Waller said in a speech in London.

“But if the October CPI [consumer price index] inflation data out later today are similar to the past two monthly readings — with core CPI inflation around 0.3% or even higher — then a stronger policy move may be needed,” he said. “In that case, I believe a 50-basis-point hike in the policy rate should be considered at the December meeting.”

Under that scenario, Waller added, moving rates by the conventional quarter point would do little to win confidence that the Fed is tackling inflation.

“Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” he said.

Fed officials held interest rates steady last month, saying the “accumulation of more information” would allow them to determine the best level for policy. The 10-2 decision to stay put followed a unanimous move to lift the benchmark rate in September by a quarter percentage point to a target range of 3.75% to 4%.

Several policymakers speaking since the meeting have touted the need for additional rate hikes, and traders on Monday saw about an 85% chance of an increase in December.

Data last week showed jobs growth surged in October and the unemployment rate edged lower. Fed officials will receive one more jobs report and a full slate of inflation data — beginning with the consumer price index for October  — before they gather again in December.

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