Fed's Waller Signals Openness to Rate Pause if Inflation Cools
Fed Governor Waller says he is willing to hold rates steady this month if inflation data shows continued progress toward the 2% target, but would back a hike if price pressures accelerate.
Federal Reserve Governor Christopher Waller has indicated he is leaning toward supporting a pause in interest rate hikes at the central bank's September 15-16 policy meeting, provided upcoming inflation data shows continued moderation in price pressures.
Speaking at a Varta Wire NEXT Newsmaker event in Washington on Thursday, Waller said he would be willing to hold the policy rate at its current 3.50%-3.75% range if the next inflation report shows progress toward the Fed's 2% target. He paraphrased John Lennon, urging policymakers to "give disinflation a chance" rather than prematurely raising rates.
However, Waller made clear that his stance is data-dependent. "If inflation comes in hot, I would consider a rate hike," he said, noting that the current policy rate is only "slightly restricting aggregate demand" and that even a modest acceleration in price pressures could push him toward tighter policy.
The Fed governor acknowledged that inflation remains "meaningfully above" the central bank's target, but said it is making "slow but continued progress." He pointed to the three-month annualized change in the Consumer Price Index as a key metric he would watch, though he declined to specify a numerical threshold for action.
The August CPI report, due next week from the Labor Department, will be the last major inflation data before the Fed's meeting. Waller said the CPI data would provide a "pretty accurate idea" of where the Personal Consumption Expenditures Price Index, which rose 3.7% year-over-year in July, is headed.
Waller's remarks come amid a hawkish turn among several Fed officials in recent weeks, following three dissents at the July 28-29 meeting where policymakers voted to hold rates steady. Fed Chairman Kevin Warsh, speaking at the Jackson Hole symposium last week, also indicated that action would be likely if inflation pressures persist.
Following Waller's comments, stock prices rose and Treasury yields fell, with traders reducing bets on a September rate hike. Analysts at Evercore ISI noted that Waller's remarks suggest he is "leaning towards a hold," echoing comments from New York Fed President John Williams.
Waller argued that the Fed can focus on inflation given the solid performance of the broader economy and relative stability in the labor market. He downplayed concerns about elevated energy prices and tariffs as ongoing sources of inflation pressure, though he acknowledged upside risks from rising energy costs, AI-related pressure on technology goods prices, and the possibility of further tariff increases.