Fed Governor Christopher Waller Signals Support for Holding Rates Steady in September

Federal Reserve Governor Christopher Waller said Thursday that he is inclined to support keeping US interest rates unchanged at the central bank’s September meeting, provided upcoming inflation data does not show a significant deterioration.

Waller’s comments offered a more reassuring assessment of recent inflation trends than some of the concerns expressed by Fed officials in recent days. He argued that while inflation remains above the Federal Reserve’s 2% target, recent data suggests that underlying price pressures may finally be easing.

The remarks immediately affected market expectations for the September meeting, with traders reducing their bets on a potential rate hike.

Waller Wants to See More Evidence From Inflation Data

Waller said his current preference is to leave the federal funds target range at its existing level if the next round of inflation reports supports the recent trend.

“If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting,” Waller said in remarks for a Reuters interview.

The Federal Reserve is scheduled to receive two important inflation reports before its September 15-16 meeting: the Consumer Price Index (CPI) and Producer Price Index (PPI).

Those figures could influence how policymakers assess the direction of inflation and whether monetary policy needs to become more restrictive.

Inflation Is Still Above the Fed’s 2% Target

Waller acknowledged that inflation remains “meaningfully above” the Federal Reserve’s 2% goal.

However, he argued that looking only at annual inflation figures may not provide the clearest picture of the most recent trend.

Headline inflation was reported at 3.7% in July, while core inflation, which excludes food and energy prices, stood at 3.3%.

Waller said shorter-term measures paint a somewhat more encouraging picture.

According to his assessment, the three-month inflation rate based on the Fed’s preferred gauge has declined from 4.76% in February to around 3.05% currently.

“That is a considerable improvement, and the speed of this downward trajectory is encouraging,” Waller said.

Waller Says Tariff Effects May Have Been Limited

Another part of Waller’s assessment concerns the impact of tariffs on inflation.

While tariffs can raise the cost of imported goods and potentially feed into broader consumer prices, Waller said their effects so far appear to have been relatively muted.

He also pointed to higher energy prices, arguing that they have not generated a substantial increase in inflation across other parts of the economy.

His comments suggest that he does not currently see enough evidence of a broad-based acceleration in prices to justify an immediate increase in borrowing costs.

‘Give Disinflation a Chance,’ Waller Says

Waller used a reference to John Lennon while explaining why he believes the Fed can afford to wait before considering another rate increase.

“I’m going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting,” he said.

He argued that raising rates by 25 basis points immediately would not by itself bring consumer inflation down to the Fed’s 2% objective.

“What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%,” Waller said.

Waller Leaves Door Open to a Rate Hike

Despite leaning toward holding rates steady, Waller did not rule out changing his position before the September meeting.

He said monetary policy is currently only slightly restrictive and warned that even a modest acceleration in inflation could change his assessment.

“If there is evidence that progress toward 2% inflation reversed in August, a small adjustment in our stance would help ensure that it resumes,” Waller said.

That qualification makes the upcoming inflation reports particularly important for policymakers and financial markets.

Market Bets on a September Rate Hike Fall

Financial markets responded quickly to Waller’s comments.

According to the CME Group’s FedWatch tool, market-implied odds of a rate hike at the September 15-16 meeting fell to approximately 48.4%, around 15 percentage points lower than the previous day.

The shift highlights how sensitive markets remain to individual comments from Federal Reserve policymakers, particularly ahead of major economic data releases.

A change in rate expectations can influence Treasury yields, the US dollar, equity markets and borrowing costs across the economy.

Waller’s View Differs From Recent Hawkish Signals

Waller’s assessment also stood out against comments made recently by Fed Chairman Kevin Warsh.

Speaking at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, Warsh said that softer monthly inflation readings did not convince him that underlying inflation trends had “meaningfully improved.”

Warsh indicated that if the inflation trend failed to cooperate, policymakers would still have work to do.

Markets interpreted those remarks as increasing the possibility of a rate hike at the September meeting.

Waller, however, offered a more optimistic reading of the same broader inflation picture, arguing that the recent downward movement deserves more time to develop.

September Inflation Reports Could Decide the Fed’s Next Move

The next major test for Waller’s position will come from the inflation data released before the September meeting.

The CPI and PPI reports will provide policymakers with fresh information about consumer and producer prices. Those figures also feed into broader inflation measures monitored by the Federal Reserve, including the Personal Consumption Expenditures (PCE) price index, the central bank’s preferred inflation gauge.

Waller also noted that some nonmarket services prices are estimated rather than directly observed, potentially affecting the inflation readings.

In addition, revisions to the methodology used by the Bureau of Economic Analysis to calculate the PCE price index are expected to lower some inflation readings reported earlier this year.

For now, Waller’s message is relatively clear: he sees enough evidence of improving inflation to justify waiting another meeting, but he remains prepared to support tighter policy if the data turns in the wrong direction.

The September meeting will ultimately depend on the full set of economic information available to the Federal Open Market Committee.