Federal Reserve Governor Christopher Waller said Thursday he would support keeping the central bank’s benchmark interest rate unchanged at its September 15-16 meeting if upcoming inflation data continues to show progress toward the Fed’s 2% target.
Waller’s remarks came in a series of interviews and prepared statements, where he emphasized that the August inflation reports, due next week, would be the primary factor in his decision. The Bureau of Labor Statistics is scheduled to release the Consumer Price Index (CPI) and Producer Price Index (PPI) on September 11 and 12, respectively.
Key Developments
- Waller stated that if the August inflation data confirms a continued downward trend in price pressures, he would be inclined to support holding the federal funds rate at its current range of 5.25% to 5.50%.
- He cautioned, however, that if the data shows a reversal in progress or an acceleration in inflation, he would consider supporting a rate hike at the September meeting.
- Waller described current monetary policy as only slightly restrictive on aggregate demand, noting that even a modest uptick in inflation could prompt him to advocate for tighter policy.
Waller’s Rationale and Data Interpretation
Waller acknowledged that inflation remains “meaningfully above” the Fed’s 2% goal, with headline inflation at 3.7% and core inflation at 3.3% as of July. However, he pointed to three-month core inflation trends, which have declined from 4.76% in February to 3.05% in July, as evidence of progress. He described this trajectory as “encouraging” and indicative of disinflation.
He also downplayed concerns about recent energy price increases and tariff impacts, stating that these factors have had a muted effect on broader inflation trends. Waller’s assessment contrasts with remarks made last week by Fed Chairman Kevin Warsh, who expressed skepticism about the durability of recent softer monthly inflation readings.
Market and Policy Reactions
Following Waller’s comments, financial markets adjusted their expectations for the September meeting. According to the CME Group’s FedWatch tool, the probability of a rate hike at the meeting dropped to 54.6%, down from approximately 66% prior to his remarks. Stock market futures showed little change, while traders trimmed bets on a rate increase.
Waller’s position adds to a growing divide among Fed officials regarding the appropriate path for monetary policy. While some policymakers, including Waller, have signaled openness to pausing rate hikes if inflation continues to cool, others, such as Warsh, have emphasized the need for caution and potential further tightening if price pressures persist.
Upcoming Data and Decision Timeline
The Fed’s next policy meeting is scheduled for September 15-16, with the August inflation reports serving as the critical data points for Waller’s decision. The CPI and PPI releases will provide the most comprehensive view of inflation trends before the meeting.
Waller’s remarks underscore the Fed’s data-dependent approach, where each upcoming economic report will play a pivotal role in shaping the central bank’s policy stance. The Fed has emphasized that its decisions will be guided by incoming data, particularly inflation metrics, to ensure price stability while balancing economic growth.