Federal Reserve's Waller: If data confirms a cooling in inflation, I tend to favor keeping interest rates unchanged in September.

Federal Reserve Governor Christopher Waller said on Thursday that he is inclined to support keeping interest rates unchanged at the Fed's next policy meeting if upcoming data confirms that inflationary pressures are cooling. In remarks prepared for an event, Waller stated, My decision regarding the appropriate policy stance will be largely influenced by the information we gather from the August inflation data. He added, If inflation continues to make progress toward our 2% target, I would be willing to support keeping the policy rate at its current level. However, Waller also warned that an interest rate hike remains on the table. He stated, If inflation data comes in hotter than expected, I will consider raising rates at the meeting on September 15-16. He noted that the current Fed policy rate of 3.50% to 3.75% only slightly restricts overall demand, and that inflation may not need to accelerate much to prompt him to support tighter policy. After holding interest rates steady for five consecutive meetings this year, the Fed will convene again for a Federal Open Market Committee (FOMC) meeting on September 15-16. Fed Chair Waller signaled a hawkish tone at the global central banking conference in Jackson Hole last Friday, pushing market bets on a rate hike this month to nearly 70%. However, following the release of weaker-than-expected little nonfarms data on Wednesday, which hit a new low for the year, rate hike expectations have moderated. As of the time of writing, the CME's FedWatch tool indicates that the market currently sees a 50.4% probability of a rate hike this month. Before the Fed makes a decision, it will receive a set of key economic data, and the current performance of inflation and employment does not yet form a clear consensus that necessitates immediate rate hikes. Among these, the employment market will be an important observation window. U.S. nonfarm payroll data has shown weakness for three consecutive months. If the August nonfarm payroll data released this week continues to weaken, it will further undermine the rationale for the Fed to tighten policy immediately. Inflation data is also critical and is viewed by some market participants as carrying more weight in the Fed's monetary policy decisions. In July, the U.S. PCE price index increased by 3.7% year-on-year, with core PCE rising by 3.3%; however, the Dallas Fed's measure, adjusted for extreme price fluctuations, stood at only 2.3%, clearly approaching the 2% policy target. Before the September meeting, the Fed will receive a series of inflation data, including CPI and PPI. Should any significant signs of cooling inflation appear, current rate hike pricing could quickly reverse. In recent weeks, several Fed officials have expressed ongoing concerns about inflation. Some officials have indicated a willingness to take action to bring persistently high inflation readings back to target levels. Regarding inflation, Waller stated that current levels are significantly above the Fed's 2% target but are slowly but steadily moving towards that target. He also pointed out that, given the robust performance of the overall U.S. economy and a relatively stable labor market, his current focus in policy is on inflation. Waller mentioned that some recent factors pushing inflation higher are unlikely to continue being significant sources of price pressure. He said, I do not currently view high energy prices and tariffs as important sources of ongoing inflation pressure. He added that the impact of increased import tariffs has likely already been transmitted throughout the economy, and the rise in energy prices related to the Middle East conflict does not seem to have spread to other prices. However, he also noted that he indeed sees some inflationary risks. He stated, Energy prices are rising again and remain significantly above levels seen in early 2026. At the same time, the economy faces two pressures: upward price pressures on technology products related to the AI construction boom, and the possibility of further tariff increases. The day before Waller's speech, Fed Vice Chair and New York Fed President John Williams stated that there is evidence suggesting inflation is continuing to cool as the impact of tariffs gradually fades, and that rising energy prices have not spread to other service sectors. In an interview on Wednesday, Williams said, Recent data is encouraging. In fact, I see the inflation trend slowly decreasing, as some of the impacts of tariffs are gradually becoming a thing of the past. He added that the main factors driving inflation currently remain tariffs and rising energy prices due to conflicts in the Middle East, and there are still some impacts on service sector inflation. Compared to the relatively moderate remarks from Waller and Williams, Fed Governor Christopher Waller warned that inflation has been above target levels for over five years, posing a risk of entrenching price pressures. He stated that if U.S. inflation fails to moderate further, he is prepared to support a rate hike. His most recent comments indicate that, with inflation struggling to return to the Fed's target, he does not rule out tightening monetary policy again.