Fed Governor Waller Opens Door to September Rate Pause if August Inflation Data Cooperates

Federal Reserve Governor Christopher Waller said on September 3 that he is inclined to support holding the federal funds rate steady at its current level of 3.50%-3.75% at the Fed's September 15-16 meeting, provided that upcoming August inflation data shows continued progress toward the 2% target. Waller noted that recent data show the Fed is "finally seeing some signs of disinflation" and cautioned that he does not want to raise rates into a disinflationary environment. He added there is no rush to cut rates until more progress emerges, leaving the door open to a hike if August CPI comes in hot.

Waller delivered conditional guidance given what he called "considerable uncertainty" over the inflation outlook, citing military conflicts, trade policy, and artificial intelligence as factors complicating the picture. He also pushed back on characterizations of loose financial conditions, arguing that elevated stock prices drive that perception while mortgage rates and auto loan rates remain high. Current rates, he suggested, may already be sufficient to return inflation to 2%.

Markets responded sharply to his remarks. Traders pared Fed rate hike bets immediately after Waller spoke, Treasury yields fell, and the Dow Jones Industrial Average rose approximately 400 points on renewed hopes that September would bring a pause rather than another increase. Gold gained more than 1% on the softer dollar and lower yields. Separately, a Reuters survey of economists found the ECB is expected to raise rates a second time in September before stopping, while Pantheon Macro warned the Fed remains just one hot CPI print away from resuming its own hiking cycle.