Fed Governor Waller indicates he will support holding rates steady at September meeting

• Headline inflation stood at 3.7% and core at 3.3% in July, but Waller emphasized that three-month inflation rates have declined from 4.76% in February to 3.05% currently, showing 'considerable improvement'
• Waller noted that tariff impacts appear muted and higher energy prices haven't substantially affected other parts of the economy, contrasting with Chairman Warsh's more hawkish tone from Jackson Hole
• The governor cautioned he could support tighter policy if upcoming CPI and PPI data (due before the Sept. 15-16 meeting) show inflation progress reversed in August

Summary: Fed Governor Waller Signals Support for Steady Rates in September

Key Developments

Federal Reserve Governor Christopher Waller indicated Thursday he is inclined to support maintaining current interest rates at the upcoming September 15-16 FOMC meeting, contingent on no surprises in forthcoming inflation data. This stance notably contrasts with recent hawkish comments from Chairman Kevin Warsh at Jackson Hole.

Inflation Assessment

While acknowledging inflation remains "meaningfully above" the Fed's 2% target—with headline inflation at 3.7% and core at 3.3% in July—Waller expressed optimism about disinflationary trends. He emphasized that three-month inflation measured by the Fed's preferred gauge has declined significantly from 4.76% in February to 3.05% currently, calling this "considerable improvement" with an "encouraging" downward trajectory.

Contrasting Fed Views

Waller's dovish tone diverges from Chairman Warsh's Jackson Hole speech, where Warsh stated recent softer readings "do not tell me that underlying trends have meaningfully improved." Markets had interpreted Warsh's comments as hawkish, quickly pricing in higher rate hike probabilities for September.

Policy Outlook

Waller maintained flexibility, noting he could change his position if upcoming consumer and producer price index reports (due next week) show inflation reaccelerating in August. He assessed current policy as "only slightly restricting aggregate demand" and warned that inflation acceleration could prompt him to support tighter policy.

Market Implications

The conflicting signals from Fed officials create uncertainty for traders ahead of the September meeting. Waller's comments may temper expectations for immediate rate hikes, though markets remain sensitive to next week's inflation data releases, which will be critical in determining policy direction.