Fed Governor Waller Ties September Rate Decision to August Inflation Data

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, but only if upcoming August inflation data continues to show progress toward the Fed's 2% target. Waller said recent data suggest the Fed is "finally seeing some signs of disinflation" and that if that trend continues over the next two weeks, he would favor a pause. However, he made clear that a hot August CPI print could lead him to support a rate hike instead, leaving his position explicitly conditional.

Waller acknowledged "considerable uncertainty" surrounding the inflation outlook, citing military conflicts, trade policy, and artificial intelligence's potential impact on prices and economic activity. He also pushed back on the notion that financial conditions are loose, arguing that elevated mortgage and auto loan rates contradict that characterization and that talk of loose conditions largely reflects elevated stock prices. He added that current Fed rates may already be sufficient to return inflation to 2%, but said there is no rush to cut until more progress emerges.

Markets responded sharply to Waller's remarks. Traders pared bets on a September rate hike, Treasury yields fell, and the Dow Jones Industrial Average rose around 400 points as investors grew hopeful the Fed would pause this month. Analysts at Pantheon Macro warned, however, that the Fed remains just one hot CPI print away from resuming hikes, underscoring how much the August inflation report, due before the September meeting, will shape the outcome.