Fed Governor Christopher Waller said Thursday he is leaning toward keeping rates unchanged at September 15–16 FOMC meeting if recent disinflation continues, arguing latest data finally show “some signs of disinflation.” Speaking at Reuters NEXT Newsmaker Interview in Washington, Waller said, “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.” He expects Friday’s employment report to look broadly similar to recent labor data and said his decision will instead be “heavily influenced” by August inflation.
Waller argued underlying inflation is improving faster than headline measures suggest. He noted nonmarket services accounted for roughly half of July’s 0.2% core PCE increase and said that, excluding this imputed component, “underlying inflation is doing better than the core numbers suggest.” Three-month core inflation has fallen from 4.76% in February to 3.05% through July, a decline he described as encouraging. Waller also said tariff price effects have “largely passed through,” while earlier fears that elevated energy costs would spread broadly into other prices “hasn’t come to pass, at least so far.”
But September hold is far from guaranteed. Waller said explicitly, “If inflation comes in hot, I would consider a rate hike,” adding that policy is “currently only slightly restricting aggregate demand” and that “it may not take much acceleration in inflation to nudge me into supporting tighter policy.” His reaction function is therefore unusually clear: continued disinflation would support patience, while evidence that progress toward 2% reversed in August could quickly put another hike back on table.
Key Takeaways
- Fed Governor Christopher Waller said he is inclined to support holding rates in September if recent disinflation continues over coming two weeks.
- Waller expects August employment report to look broadly similar to recent labor data and said his September decision will be “heavily influenced” by August inflation instead.
- He sees underlying inflation improving faster than headline core readings suggest, noting nonmarket services accounted for roughly half of July’s core PCE increase.
- Three-month core inflation has fallen from 4.76% in February to 3.05% through July, a pace of improvement Waller described as encouraging.
- Waller believes tariff effects have largely passed through, while feared spillover from earlier energy-price increases into broader inflation has not materialized so far.
- September hold is conditional, not a commitment. Waller said “If inflation comes in hot, I would consider a rate hike.”
- With policy currently only “slightly restricting aggregate demand,” he warned it “may not take much acceleration in inflation” to push him toward tighter policy.
- His reaction function is therefore clear: continued disinflation favors a hold; renewed inflation acceleration puts another hike back in play.
