A Fed Governor Said He’d be Open to a Half-Point Rate Hike if Inflation Came in Hotter. That Just Happened.

Federal Reserve Governor Christopher Waller said that he would be open to a 50 bps rate hike in December if inflation came in hotter than expected. That's what happened on Tuesday.

The Bureau of Labor Statistics detailed that the Consumer Price Index climbed 0.4% last month, compared to the 0.3% expected by analysts. Core CPI, which excludes more volatile components like food and energy, also climbed 0.3%, compared to the 0.2% expected.

Chances of a hike to the 4%-4.25% range stand at 98.8%, according to the CME Group's FedWatch tool. They clocked in at 84% before the report came in.

However, Waller said in London that he was "leaning toward" a rate hike even if the October reading was softer than expected and would back "more robust action" if it was higher than the forecasts.

"In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting," Waller said. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," he added.

Waller went on to say that Fed communications before and at the October meeting led markets to price in more hikes. "When this communication is clear and credible, what really matters is that those hikes are eventually carried out — it is not necessary, for example, to raise rates at consecutive meetings," Waller claimed.

"If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way," he added, saying that hikes "will be needed sooner rather than later."

Earlier this month, Richmond Federal Reserve President Thomas Barkin said he expects the central bank to continue hiking rates, but is unsure about the pace or the amount of such decisions.

Speaking to CNBC, Barkin noted that "unemployment is near record lows, and inflation is too high," making the decision "pretty straightforward."

"The question, of course, is pace," he added. "Gradual makes sense if you think there's uncertainty in the world, and if you think that there's information you're going to get in the period. And I think that's still a pace that makes sense to me."

Energy prices, which have been contributing to inflation throughout the year, could see a reprieve over the next weeks as oil prices fall on hopes that the Iran war might not return to full-fledged hostilities.

Trump said in a social media post on Monday night that he had an "excellent" conversation with Qatari Prime Minister Mohammed bin Abdulrahman bin Jassim Al Thani about the course of the war.

"Qatar, Saudi Arabia, UAE, Bahrain, Kuwait, and others, would prefer the status quo, in other words, a continuation of the Greatest Naval Blockade in History, and the new Operation Iron Gate — Therefore, Land and Sea," Trump said in a passage of the post, in reference to a decision to also block Iranian exports through land, not only sea.

Trump said, the U.S. remains "locked and loaded" to resume strikes but "at this point, however, that seems to be quite unlikely."