CPI Report Tomorrow: Fed's Waller Warns Another Hot Core Inflation Reading Could Prompt Central Bank To Tighten Monetary Policy

• Waller said his biggest concern is the steady rise in core inflation, with the Fed's preferred Personal Consumption Expenditures index advancing to 3.4% in May on an annualized basis, from 3% in December 2025.
• He argued that it is no longer appropriate to attribute elevated price pressures primarily to last year's tariff increases.
• According to Waller, inflation is now being driven by a combination of factors, including tariffs, higher energy prices following the Middle East conflict, and spillover effects from continued investment in AI.

Federal Reserve Governor Christopher Waller said on Monday that another hotter-than-expected core inflation reading could prompt policymakers to consider tightening monetary policy.

Waller’s comments come a day ahead of the Consumer Price Index (CPI) print for June, which is scheduled to be released on Tuesday.

Speaking at the New York Association for Business Economics on Monday, Waller said the Federal Open Market Committee (FOMC) is at a "crossroads" as it weighs persistent inflation against a still-resilient economy.

“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,” he said.

Why Waller Is Concerned About Inflation

Waller said his biggest concern is the steady rise in core inflation this year. Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, advanced 3.4% in May on an annualized basis, from 3% in December 2025.

He argued that it is no longer appropriate to attribute elevated price pressures primarily to last year's tariff increases.

According to Waller, inflation is now being driven by a combination of factors, including tariffs, higher energy prices following the Middle East conflict, and spillover effects from continued investment in AI.

He said AI-related demand may also be contributing to higher prices for semiconductors, servers, computers and other hardware, adding that persistent shortages of certain chips could put further upward pressure on prices if AI investment remains strong.

Wall Street expects core CPI for June to come in at 3.8% on an annualized basis, according to a consensus estimate compiled by MarketWatch.

What It Means For Fed Policy

Waller said the Fed must avoid repeating its mistake of waiting too long to respond to rising inflation in 2021, but also warned against overtightening policy and unnecessarily pushing the economy into a recession.

He said the current economic backdrop differs from that of the period, citing a more balanced labor market and inflation expectations anchored near the Fed's 2% target.

Despite this, Waller said policymakers cannot afford to ignore inflation that remains well above target.

He said he would need to see several months of lower core inflation readings before supporting keeping interest rates at their current level.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, declined 0.66%; the Invesco QQQ Trust ETF (QQQ) was down 1.73%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 0.28%. Retail sentiment on Stocktwits regarding the S&P 500 ETF was in ‘bullish’ territory.

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