Federal Reserve leaders conflicted over next interest rate hike

Members of the Federal Reserve System are weighing the next interest rate hike coming in December, deciding between an increase of one percentage point or possibly less.

Federal Reserve governor Christopher Waller said he is encouraged by key recent market reports that indicate the economy is cooling down and would consider a smaller rate hike, possibly a half-point increase, after four-straight increases of 0.75 percentage point.

San Francisco Federal Reserve president Mary Daly, however, said she is less certain that the time is right for the Fed to ease back.

October brought encouraging data to the table, suggesting the Fed's several rate hikes this year are working to slow inflation. The Consumer Price Index reported its smallest 12-month increase since January.

The Bureau of Economic Analysis' personal income and outlays report for September reveals wages are increasing while the increasing cost of goods, food and fuel slowed down.

Waller said he is not ready to commit to a smaller rate increase yet, saying he wants to wait for the next personal consumption expenditures report Dec. 1. He said he is wary of coming to conclusions after the October report alone.

"Though welcome news, we must be cautious about reading too much into one inflation report. I don't know how sustained this deceleration in consumer prices will be," he said.

"I cannot emphasize enough that one report does not make a trend. It is way too early to conclude that inflation is headed sustainably down."

Daly is preparing for at least one more full percentage point increase, if not more to follow. In an interview with CNBC, she said the right range for overnight lending rates is likely somewhere between 4.75% and 5.25%. She said the Fed is executing a "raise-and-hold strategy," and timing is crucial when deciding it is time to hold.

"Pausing is off the table right now. It's not even part of the discussion," she said. "Right now, the discussion is rightly around slowing the pace and -- focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive."

The Federal Open Market Committee will consider its next increase when it meets Dec. 13 and14.