U.S. Federal Reserve Board Member Christopher Waller attends the Federal Reserve Board’s Payments Innovation Conference on Tuesday, October 21, 2025, in Washington, DC.
Aaron Schwartz | Bloomberg | Getty Images
Federal Reserve President Christopher Waller on Monday expressed concern about inflation but warned against “fighting the last war” and said the central bank should wait for more data before raising interest rates.
In a speech in New York, Waller said inflation was rising beyond commonly cited factors such as rising energy prices and tariffs. Instead, he cited other factors, particularly artificial intelligence, as the root cause of inflation being stubbornly above the Fed’s 2% target.
Waller warned that “the desire to avoid past mistakes often leads to new ones.”
“We recognize the mistake we made in 2021 by not reacting sooner to the observed high inflation, and we are determined not to repeat it,” he said.
However, he said that does not mean the central bank would reflexively raise interest rates to stem the current spate of price increases.
Waller said there was still “credible evidence that inflation could start to recede,” but noted there were “equally plausible” scenarios in which inflation could remain high or rise, “requiring monetary tightening in the near term.”
The policymaker emphasized a deliberate approach in assessing the root causes of inflation, including tariffs due to take effect in 2025, rising energy prices due to fighting in the Middle East, and “demand spillovers” caused by artificial intelligence.
“As always, we need to avoid making the mistake of reacting too quickly to tightening inflation simply because we fought the last war and lasted too long,” he said. “But we must also avoid repeating the same mistakes we made in 2021 and 2022 by waiting too long to react.”
Waller cited two factors working in the Fed’s favor this time around: a stronger labor market, which is not a meaningful inflation factor, and solid inflation expectations, at least according to market-based measures.
But he cautioned against complacency.
“We often hear the argument that central bankers don’t need to respond to above-target inflation because inflation expectations are fixed, but this view is wrong,” he said. “Standing down on inflation until it melts before our withering gaze is not an option.”
Waller’s remarks came the day before the Bureau of Labor Statistics released its consumer price index for June. Economists surveyed by Dow Jones expect the monthly index to show a 0.2% decline across all headlines, driven by a sharp decline in oil and a 0.2% rise in core, which excludes food and energy. On an annual basis, headline viewership will decline to 3.8% from 4.2% in May, and core viewership will decline from 2.9% to 2.8%.
“We would be very happy to see core inflation on the downside, but after the rise in inflation in the first half of this year, we would need to see a few months of downside before we feel that inflation is moving in the right direction,” Waller said. “For the reasons I have explained today, I believe this remains a reasonable outcome, in which case I would continue to keep policy rates in their current target range.”
The Fed will meet again in late July, with markets pricing in about a 39% chance of a rate hike, according to CME Group.
