Federal Reserve Governor Christopher J. Waller said further monetary policy tightening may be needed “sooner rather than later” to return inflation to a path consistent with the Federal Open Market Committee’s 2 percent medium-term goal.

Waller made the remarks on November 10, 2026, in a speech titled “The Economic Outlook and Some Thoughts on Labor Market Dynamism” at the Bank of England Watchers Conference hosted by King’s Business School and the Money, Macro and Finance Society in London, United Kingdom. He said the U.S. economy was growing strongly and that employment was close to its long-term level, but inflation remained too high.

Waller said he had supported the FOMC majority’s decision at its most recent meeting to keep the policy rate unchanged. In an earlier speech, he said, he had explained that the Committee’s communication about likely tightening had already led financial markets to price in some rate increases. When communication is clear and credible, he said, the key issue is that the increases are eventually implemented; it is not necessary to raise rates at consecutive meetings.

If expected increases are not delivered, markets may reduce their expectations for future rate hikes and interest rates may fall immediately, loosening monetary policy in an undesirable way. Waller said the exact timing of increases was less important than ensuring that promised increases were implemented within a reasonable period.

Economic growth and employment

Waller said economic output continued to expand at a healthy pace. The initial estimate showed real gross domestic product (GDP) increasing at a 3.4 percent annual rate in the third quarter, supported by strong consumer spending and robust investment. Consumption growth benefited from a booming stock market, while business investment continued to surge, particularly in high-tech equipment associated with the buildout of artificial intelligence (AI).

He said GDP growth was likely moderating in the current quarter as consumer spending slowed to levels more consistent with household income and wealth, but he expected output to continue growing at a solid pace.

The labor market also remained solid, Waller said. The unemployment rate edged down to 4.1 percent in October, matching its level during the summer. Monthly job creation had fluctuated widely, but October saw gains of 165,000 jobs, while estimates of payroll growth in the previous two months were revised upward by a combined 85,000 jobs.

Looking beyond the monthly volatility, average payroll gains over six and 12 months were closer to 80,000 jobs per month. Waller said that pace was somewhat above most estimates of the breakeven rate needed to keep the unemployment rate steady and was consistent with his view that labor supply and demand were broadly in balance.

At the same time, he said the labor market had for more than a year been best described as “low hire, low fire.” Separation rates—the combined rate of layoffs and quits—had remained persistently low in recent years compared with a decade earlier. Hiring rates were also low.

That combination is unusual, Waller said, because hiring is normally high in a strong labor market. Hiring tends to be low when the labor market is weak, a period when firing rates are often elevated. The unusual feature of the current environment, and possibly an unprecedented one, was the extent to which both hiring and firing had fallen to low levels.

Labor market dynamism

The pattern led Waller to ask whether a stable labor market necessarily represented a healthy labor market. He compared the distinction to a doctor describing a hospitalized relative as being in stable condition: Stability would be reassuring, but it would not necessarily mean the person was healthy.

Waller said he was concerned that the low-hire, low-fire equilibrium indicated that the labor market had lost some of its dynamism, which is important for productivity growth and real wages. He said he did not have definitive answers about whether reduced dynamism had become a monetary policy issue, but believed the questions warranted consideration.

He distinguished between net employment growth and the gross flows of workers into and out of employment. Behind the monthly job-creation figures is substantial labor market churn. In September, for example, the 60,000-job increase in net employment was dwarfed by the more than 5 million people who left their jobs and the more than 5 million who were hired during the month.

Thus, even with low separation and hiring rates, the absolute levels of hiring and separations remained enormous. Waller compared the labor market with a river: The water level might be unchanged when measured on successive days, but a massive volume of water would have flowed downstream. Similarly, employment can remain stable while large numbers of people move between jobs.

Waller said the churn was beneficial to the economy rather than wasteful. It reflected a dynamic market that enabled labor resources to move toward more productive uses. When a worker and a company were not a productive match, separating and searching for new partners could be more efficient and better for the economy. More productive matches could raise productivity, real wages and profits, even if employment itself was less stable.

He said he believed this churn contributed to the exceptional performance of the U.S. economy. The relative ease of starting businesses in the United States compared with many other advanced economies was a major advantage. Although the relative ease of dismissing employees compared with many European Union economies was unwelcome for affected workers, Waller said it had cumulatively contributed to the stronger U.S. recovery from the pandemic recession.

Flexibility in hiring and firing helped match workers’ skills with businesses’ needs and made more productive use of workers’ abilities. In turn, that churn increased the economy’s capacity and allowed incomes to grow without creating inflationary pressure.

Possible causes of reduced dynamism

Waller said the current low-hire, low-fire environment could indicate that the U.S. labor market had become less dynamic and less healthy, with potential implications for the economic outlook and monetary policy. Some of the decline in hiring and firing may reflect long-term trends that began before the pandemic.

One such trend is the aging of the workforce. People are living longer and remaining healthier and more active at older ages; many members of the large post-World War II baby boom are now in their 60s and 70s; and declining birth rates have increased the workforce’s relative age. Older workers generally change jobs less frequently because many have found better matches over time and are less likely to relocate for work.

A second trend is the rising educational attainment of the workforce. More-educated workers generally experience less job churn and face lower separation rates during downturns. Since 2010, the share of adults age 25 and older with at least a bachelor’s degree has increased from 28 percent to 37 percent. Waller cited Shakeena J. King and Daniela Mejía’s 2026 article, “Women Ages 65 and Over Now Make Up the Largest Share of Education Bachelor’s Degree Holders,” published by the U.S. Census Bureau’s America Counts on October 29.

If those were the only explanations, labor market dynamism would be consistent with long-term trends and would not have monetary policy implications. But Waller said the data suggested that dynamism remained somewhat low even after accounting for those factors.

One possible explanation is that hiring and job-switching have been restrained by several sources of economic uncertainty that have emerged since early 2025. These include the advent of AI, tariffs, changes in immigration policy and enforcement, and broader uncertainty about the economic outlook that has complicated business planning.

Waller cited a special question in the Federal Reserve’s November 2025 Beige Book survey. Employers reported that hiring was unusually restrained because of uncertainty. He said he did not think uncertainty had diminished substantially since then. The most recent Beige Book also indicated that several Federal Reserve districts had reported that firms delayed hiring or anticipated less job creation after investing in AI.

Another possible explanation is that low firing reflects the large increase in job-switching from 2020 through 2023 associated with the pandemic. Workers who recently moved to new jobs may be less inclined to switch again, limiting job-switching activity. Waller said this effect could be temporary because workers remain in their jobs for a median of three years before switching again, and the last of the pandemic-era job switchers was approaching that threshold.

However, workers may remain in their jobs longer if the pandemic-related switching had been unusually effective at improving matches between workers and employers. Many workers relocated or pursued new careers and aspirations during that period and may now be less willing to change jobs again.

Waller said it was difficult to identify and weigh the causes of lower labor market dynamism or determine how long the trend might continue. That uncertainty also made it difficult to assess the implications for the economic outlook and monetary policy.

Effects on unemployment and new workers

Waller said the possible effects of the low-hire, low-fire environment could be assessed more directly. Low layoffs meant that fewer workers experienced unemployment, but a low hiring rate could mean that people who became unemployed faced longer spells without work.

The share of unemployed people who had been looking for work for more than six months had risen steadily since 2022 and was now unusually high for a period of economic expansion. The three-month moving average of workers reporting that they had been unemployed for 27 weeks or more rose from about 18 percent at the end of 2022 to more than 27 percent through September 2026.

Lower labor market dynamism could also make it more difficult for new entrants—typically younger workers with less experience—to find jobs. Waller said the challenges facing young workers had been widely discussed. The share of new labor force entrants among the unemployed had risen to near the highest levels of the past 20 years.

Both developments could indicate that the labor market was less healthy than the headline unemployment rate suggested, with implications for the longer-term path of monetary policy. If low hiring and separations reflected improved worker-employer matches, the result could be a productivity boost that could largely be disregarded when assessing labor market conditions.

But Waller said he was concerned that reduced dynamism instead reflected barriers to mobility affecting long-term and youth unemployment. Such barriers could lead to a less efficient distribution of workers across jobs and hinder productivity growth. He said the issue was important to monitor because productivity growth was a crucial factor in determining how quickly the economy could expand without generating undesirable inflationary pressure.

Inflation and monetary policy

Waller said the labor market was stable in the near term and that employment was close to the FOMC’s maximum-employment goal. Inflation, by contrast, was well above 2 percent and remained his primary focus.

He said he had been willing to wait to tighten monetary policy at the FOMC’s October meeting because of the reasoning he had outlined at the beginning of his speech. October consumer price index (CPI) data were due to be released later on November 10. Even if the figures showed an improvement over September, Waller said he would still support a 25-basis-point increase in the FOMC’s policy rate at its December meeting. If inflation was substantially higher than he expected, he said the FOMC might need to take stronger action.

“Let’s just say it. September’s inflation data were bad. There was no silver lining,” Waller said.

Inflation measured by personal consumption expenditures (PCE), the measure targeted by the FOMC, rose 0.5 percent in September and 3.7 percent over the previous 12 months. Core PCE inflation, which excludes food and energy prices, increased 0.3 percent in September and 3.1 percent from a year earlier.

Waller said both measures were too high and expressed particular concern about the breadth of price increases. Earlier in the year, excessive inflation had been driven by nonmarket prices that were estimated rather than directly observed by the government. He said he tended to discount those prices because they were difficult to measure and an unreliable guide to the overall trend in core inflation.

More recently, two components with greater relevance to future inflation had become elevated: core goods prices and core market-based services excluding housing. More than 70 percent of the components of core PCE services prices posted 12-month increases above 3 percent in September.

Waller said he would examine whether elevated inflation remained broad in the October data, including whether prices for high-tech goods associated with the AI buildout continued to rise at the very high rates recorded in recent months. He also wanted to determine whether the rise in energy prices over the previous several months was passing through to goods and services directly or indirectly through higher input costs.

Although energy prices had declined from their high levels over the preceding week or so, they remained significantly higher than at the beginning of the year. Their ultimate effect on inflation would depend on the price levels that persisted.

Federal Reserve research on price pressures

Waller said Federal Reserve staff had examined the effects of the AI buildout and elevated energy prices on inflation, and that their findings did not suggest those factors would fade soon.

In one exercise, researchers used textual analysis of purchasing manager surveys conducted by the Institute for Supply Management (ISM) to identify imminent price pressures. ISM surveys ask purchasing managers to list commodities, materials and services whose prices rose or fell during the month. For the prices-paid question, respondents indicate whether prices increased, decreased or remained unchanged from the previous month and list specific commodities, materials or services in an accompanying text field.

Federal Reserve staff used the responses to create monthly price-pressure indexes corresponding to categories in the producer price index (PPI). The researchers found that the indexes provided information about future changes in producer prices and therefore could contain signals about future PCE inflation.

The index for high-tech products increased in December 2025 and rose further in January 2026, before an acceleration in those goods prices appeared in the February PPI and inflation data. The most recent ISM data, covering October, pointed to the possibility of additional price increases.

The research was described by Tomaz Cajner, Leland D. Crane, Christopher J. Kurz, Paul E. Soto and Betsy Vrankovich in the October 1, 2026, FEDS Notes article “Pricing Sentiment: Measuring Input Cost Pressure from ISM Survey Responses.”

Other Federal Reserve research suggested to Waller that energy price pressures might pass through to goods and services more persistently than in the past. The researchers identified a possible post-pandemic shift in the inflation process, indicating that core inflation might be more responsive to energy shocks.

Central bankers have traditionally looked through energy price shocks on the assumption that their effects on inflation would fade quickly. Waller said the new research cautioned against taking too much comfort from that approach. It suggested that if oil prices remained elevated, the resulting pressures could be larger than previously thought and could persist well into 2027.

The research was described by Andrea De Michelis, Musa Orak, Avani Pradhan and Albert Queralto in the November 9, 2026, FEDS Notes article “The Effect of Oil Prices on Core Inflation: Recent Evidence from the Advanced Economies.”

Waller also cited reasons elevated energy prices could persist. Although tanker traffic through the Strait of Hormuz had increased, the shipments were moving at great expense. Insurance required for ships making the passage, along with ship-to-ship oil transfers intended to guard against Iranian attacks, was reportedly adding $20 to $30 per barrel to oil prices.

A second issue was that diesel production was being affected by limited refining capacity and other constraints. As a result, elevated U.S. diesel prices were not expected to moderate as readily as crude oil prices would in a more peaceful Middle East.

December rate decision

Waller summarized his outlook by saying economic activity was strong, the labor market was stable and inflation was too high—well above the FOMC’s 2 percent goal.

Even if the monthly inflation rate improved in October, he said he was leaning toward supporting a 25-basis-point increase in the policy rate at the FOMC’s December meeting. That was his plan if economic data developed as expected.

However, if the October CPI data were similar to the previous two monthly readings, with core CPI inflation at about 0.3 percent or higher, Waller said a stronger policy move might be necessary. In that case, he said a 50-basis-point rate increase should be considered at the December meeting.

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

Waller noted that the views expressed in the speech were his own and were not necessarily shared by his colleagues on the Federal Reserve Board or the Federal Open Market Committee.

References

1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee.

2. Christopher J. Waller (2026), “The Signaling Value of the Summary of Economic Projections,” speech delivered at the Istanbul Economic Forum, Central Bank of the Republic of Türkiye, Istanbul, October 8.

3. Shakeena J. King and Daniela Mejía (2026), “Women Ages 65 and Over Now Make Up the Largest Share of Education Bachelor’s Degree Holders,” U.S. Census Bureau, America Counts: Stories Behind the Numbers, October 29.

4. The three-month moving average of workers reporting that they had been unemployed for 27 weeks or more increased from around 18 percent at the end of 2022 to more than 27 percent through September 2026.

5. Tomaz Cajner, Leland D. Crane, Christopher J. Kurz, Paul E. Soto and Betsy Vrankovich (2026), “Pricing Sentiment: Measuring Input Cost Pressure from ISM Survey Responses,” FEDS Notes, Washington: Board of Governors of the Federal Reserve System, October 1.

6. For the prices-paid question, respondents indicate whether prices increased, decreased or stayed the same relative to the previous month and are asked to list specific commodities, materials or services in an accompanying text field.

7. Andrea De Michelis, Musa Orak, Avani Pradhan and Albert Queralto (2026), “The Effect of Oil Prices on Core Inflation: Recent Evidence from the Advanced Economies,” FEDS Notes, Washington: Board of Governors of the Federal Reserve System, November 9.