Fed Governor Waller Signals Openness to Holding Rates Steady If Inflation Cools

Federal Reserve Governor Christopher Waller indicated this week that he is inclined to support keeping interest rates unchanged at the central bank’s upcoming policy meeting, provided upcoming inflation data continues to show signs of improvement. Speaking at a public event in Washington, Waller emphasized the importance of the next inflation reading, saying he would back holding rates steady if price pressures show continued progress toward the Fed’s 2% target.

Waller used a playful reference to a classic song lyric to describe his preference for patience, suggesting policymakers should allow disinflation more time to take hold rather than rushing into a rate increase. However, he made clear that if inflation data comes in stronger than expected, he would be open to supporting a rate hike at the Fed’s mid-September meeting.

Inflation Remains Above Target, But Progress Continues

Waller acknowledged that inflation remains meaningfully above the Fed’s long-term goal, though he characterized recent progress as slow but ongoing. He pointed to upcoming government inflation data as a key indicator that would help clarify the broader inflation trend ahead of the central bank’s next policy decision.

The Fed governor also addressed some of the underlying factors influencing recent price pressures, expressing less concern about tariffs and elevated energy prices as ongoing inflation drivers, while acknowledging potential upside risks tied to rising technology costs linked to AI infrastructure investment and the possibility of further tariff increases.

Market Reaction Shifts Expectations

Following Waller’s remarks, financial markets responded with rising stock prices and falling Treasury yields, as traders reduced their expectations for an imminent rate hike this month. Despite this shift, most market participants still anticipate the Fed will raise rates at some point before the end of the year. Waller’s comments echoed similar sentiments expressed by another senior Fed official earlier in the week, reinforcing a broader sense of caution among some policymakers about moving too quickly on rate changes.