01:03 PM EDT, 07/13/2026 (MT Newswires) -- While energy prices are the headline over the inflation picture, core inflation is a larger concern that may need to be addressed if it remains elevated, Federal Reserve Governor Christopher Waller said Monday at the New York Association for Business Economics.

Waller made his remarks one day before the release of June consumer price data that are expected to show a decline in headline inflation due to falling energy prices, but a further increase in core inflation outside of energy and food prices.

"Conventional wisdom among central bankers is to look through one-time price increases, such as those associated with higher tariffs and a jump in oil prices," Waller said. "But, at this point, I am concerned about the elevated pace of core inflation this year, which has steadily moved up -- as measured by the 12-month personal consumption expenditures (PCE) rate -- from 3% in December 2025 to 3.4% in May."

Waller said that core inflation remains at a turning point, where further upward movements are possible, but so is a slowdown back toward the 2% goal, with the path of monetary policy depending on it.

"Because core inflation is a good guide to future inflation, I am concerned that, if this upward trend continues, it will be hard to push inflation back toward the Committee's 2% goal with monetary policy at its current setting," Waller said. "As I said in a May 22 speech, I am cognizant of the mistake we made in 2021 by not responding sooner to the high inflation we observed, and I am determined to avoid repeating it."

Waller said that he will need to see many months of lower inflation readings to convince him that the trend is moving in the right direction, which he said is "a reasonable outcome" that would allow the FOMC to maintain the current policy rate.

"But I don't take the inflationary signals I have discussed today lightly," he said. "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."

At the same time, the FOMC needs to carefully act to address underlying inflation while balancing it with damage to the economy by acting too aggressively.

"I am committed to returning inflation to the FOMC's 2 percent goal but also determined to avoid overtightening policy and risking a recession," he said. "Tomorrow's inflation data will be one of several data releases I'll be looking at to determine the appropriate path of policy."

Waller said was not concerned about the slowdown in hiring in the June employment data, noting that the monthly average payrolls gain in recent months was well above the 2025 average and indicative of strong labor demand.

"In sum, I believe employment is close to its maximum sustainable level, neither a source of concern for the strength of the six-year economic expansion nor a source of inflationary pressure," Waller said. "Unless I see evidence of a significantly weakening labor market, my focus will be on inflation."

Likewise, consumer demand is likely to remain strong, supporting economic growth, he said.

"I expect solid consumer spending growth to continue, helped by energy prices that have recently fallen from their April highs," he said. "And, despite some concerns on Wall Street about whether AI demand will continue its fast growth, I expect that AI-related investment will continue at a strong pace in the near term and most likely next year as well."