Fed Governor Waller Argues for Holding Rates Steady at September Meeting
Federal Reserve Governor Christopher Waller said Thursday he is leaning toward keeping the central bank's benchmark interest rate unchanged at this month's policy meeting, provided upcoming inflation data continues to moderate.
As Reuters reported, the remarks came at a Reuters NEXT Newsmaker event in Washington and introduced fresh uncertainty into a rate decision markets had largely expected to be a hike.
The Fed's current policy rate sits in the 3.50%-3.75% range, where it has been since December.
Waller said that level is only modestly restraining economic demand, and that inflation remains meaningfully above the Fed's 2% target but is making slow, continued progress toward it.
What Waller Said — and What Could Change His Mind
Waller, invoking the late John Lennon, told the Reuters audience that policymakers should give disinflation a chance and avoid tightening prematurely. He said he would back holding rates at the September 15-16 meeting if August price data shows continued easing.
However, he made clear the door to a hike is not closed. If inflation comes in hot, he said, he would consider supporting a rate increase.
His threshold is flexible. Waller said he was watching for an easing in the Consumer Price Index (CPI) measured on a three-month annualized basis, but declined to put a specific number on what would satisfy him.
He also said he does not view elevated energy prices or tariffs as a significant ongoing source of inflation pressure.
The August CPI report is due from the U.S. Labor Department next week. That release will be the last major price data before the Fed meeting.
Waller noted that CPI typically offers a reliable early signal of where the Personal Consumption Expenditures (PCE) price index will land. PCE is the Fed's preferred inflation measure. It registered 3.7% year over year in July, according to Reuters.
Why Markets Were Surprised
Before Waller spoke, investors had priced in solid odds of a quarter-percentage-point rate hike this month. Fed Chair Kevin Warsh's remarks at the Jackson Hole conference last week had reinforced those expectations.
A range of Fed officials had recently voiced concern about persistent above-target inflation, and three policymakers dissented against holding rates steady at the July 28-29 meeting.
Waller's comments signal the Fed's top officials are not aligned. His stance matters. As MarketWatch noted, Waller is considered one of Warsh's most influential colleagues.
What This Means for Borrowers
For consumers carrying variable-rate debt or watching savings yields, the September decision carries real consequences. A rate hike would likely push borrowing costs higher on credit cards, home equity lines of credit (HELOCs), and adjustable-rate mortgages.
A hold would leave those rates unchanged for now.
Barron's reported that Waller laid out a compelling case for staying on hold, while acknowledging the data could still move in a direction that demands action. Ten days of economic data now stand between the current uncertainty and the Fed's next decision.