Federal Reserve Governor Christopher Waller said Thursday he is inclined to keep interest rates unchanged at the central bank’s September meeting, barring any surprise inflation data.
Waller expressed confidence in current inflation trends, arguing that tariff impacts have likely been muted and higher energy prices have not significantly affected other parts of the economy.
His remarks appear to contrast with those delivered last week by Fed Chairman Kevin Warsh, who struck a notably more hawkish tone at the central bank’s annual Jackson Hole symposium in Wyoming.
While Waller acknowledged that inflation remains “meaningfully above” the Fed’s 2% target, he said recent trends “suggest we are finally seeing some signs of disinflation.”
“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 a Reuters interview.
Market-implied odds for a rate hike at the September 15-16 meeting dropped sharply after the comments, with traders pricing in just a 48.4% probability, down about 15 percentage points from Wednesday, according to the CME Group’s FedWatch gauge.
Waller offered a colorful appeal for patience on monetary policy, invoking a famous musician to make his case for waiting before acting.
“I’m going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting,” Waller said. “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%.”
The governor did leave room for a change of course, noting that fresh inflation signals before the meeting could shift his position significantly.
“I judge that policy is currently only slightly restricting aggregate demand, and it may not take much acceleration in inflation to nudge me into supporting tighter policy,” Waller said.
He added: “If there is evidence that progress toward 2% inflation reversed in August, a small adjustment in our stance would help ensure that it resumes.”
The most important upcoming inflation data will come from the Bureau of Labor Statistics, which is set to release consumer and producer price index reports next week ahead of the September meeting.
Those two reports feed heavily into the Commerce Department’s personal consumption expenditures price index, which serves as the Fed’s primary inflation benchmark for policy decisions.
Last week, Chairman Warsh stated that recent softer monthly inflation readings “do not tell me that underlying trends have meaningfully improved,” adding that if trends do not cooperate, “we have work to do.”
Markets interpreted Warsh’s Jackson Hole remarks as hawkish, quickly pricing in a strong probability for a rate hike at the upcoming September meeting before Waller’s comments shifted expectations.
Waller pushed back on the headline numbers, arguing that though core inflation was at 3.3% for July, underlying trends are actually “better than the core numbers suggest” and annual figures “are not the best guide for where inflation is today.”
He pointed to the three-month inflation rate as measured by the Fed’s preferred gauge, which has declined from 4.76% in February to 3.05% currently, calling it “a considerable improvement.”
“That is a considerable improvement, and the speed of this downward trajectory is encouraging,” he said.
Waller also noted that certain estimated “nonmarket services prices” could be artificially pushing headline inflation readings higher than actual conditions warrant.
