Federal Reserve Governor Christopher Waller indicated on Thursday that he would lean toward supporting a pause in interest rate hikes at the upcoming policy meeting if forthcoming data confirms that inflation pressures are easing. In prepared remarks for an event, Waller stated that his decision on the appropriate policy stance would be heavily influenced by information gleaned from August's inflation figures. He expressed willingness to keep the policy rate at its current level should inflation continue to make progress toward the 2% target.
However, Waller also cautioned that the possibility of further tightening remains on the table. He noted that if inflation readings come in hot, he would consider raising rates at the September 15-16 meeting. Waller described the current policy rate range of 3.50% to 3.75% as only mildly restrictive on aggregate demand, adding that inflation might not need to accelerate significantly before he would pivot toward supporting tighter policy.
The Federal Open Market Committee (FOMC) is scheduled to convene on September 15-16, following five consecutive meetings where rates were held steady. Market expectations had shifted notably last week after Fed Chair Warsh delivered hawkish remarks at the Jackson Hole symposium, briefly pushing the probability of a September hike to nearly 70% in money market pricing. Yet, expectations have cooled somewhat following Wednesday's weaker-than-expected ADP private payrolls report, which hit its lowest level this year.
As of this writing, the CME FedWatch tool shows markets pricing in roughly a 50.4% probability of a rate increase this month. Several key economic releases will arrive before the Fed makes its final determination, and neither current inflation nor employment data has formed a clear consensus for urgent policy action.
Employment trends are one crucial observation window. U.S. nonfarm payrolls have now shown weakness for three consecutive months. Should August jobs data, due this week, continue to soften, it would further undermine the case for immediate tightening. Inflation metrics are equally pivotal, with some market participants believing they carry greater weight in the Fed's decision-making process. July's PCE price index rose 3.7% year-over-year, while core PCE increased 3.3%. Notably, the Dallas Fed's trimmed mean measure, which strips out extreme price swings, stands at just 2.3%, drawing noticeably closer to the 2% policy objective.
Ahead of the September meeting, the Fed will receive a series of inflation readings, including CPI and PPI. Should any of these show clear signs of cooling, current rate-hike pricing could quickly recede. Over recent weeks, multiple Fed officials have voiced ongoing concerns about inflation, with some expressing readiness to act decisively to bring persistently above-target readings back to goal.
Regarding inflation, Waller acknowledged that price levels remain "clearly above" the Fed's 2% target but said they are moving toward that goal "slowly but steadily." He emphasized that with the broader economy performing solidly and the labor market relatively stable, inflation remains his primary policy focus at this stage. Waller also suggested that some factors driving inflation recently are unlikely to continue as significant sources of price pressure. He stated that elevated energy prices and tariffs are not currently major contributors to sustained inflation, noting that the effects of import tax increases have likely already transmitted through the economy, and energy price spikes related to the Middle East conflict have not yet spread to other price categories.
Still, Waller acknowledged upside risks to inflation. He pointed to renewed energy price increases that remain significantly above early-2026 levels, combined with dual pressures from rising technology product costs tied to the AI investment boom and the possibility of further tariff escalations.
A day before Waller's remarks, New York Fed President Williams, the central bank's third-ranking official, cited evidence that inflation continues to cool as tariff effects gradually fade, with energy price gains not spilling over into other service sectors. Williams described recent data as encouraging in an interview Wednesday, noting he sees inflation trends slowly declining as some tariff impacts become part of the past. He added that tariffs and energy price increases from Middle East tensions remain the largest current inflation drivers, with some lingering effects on services inflation.
In contrast to the relatively measured tones of Waller and Williams, Fed Governor Barr struck a more cautionary note, warning that inflation has remained above target for more than five consecutive years, creating risks of entrenched price pressures. He stated he would be prepared to support rate hikes should U.S. inflation fail to moderate further, signaling his openness to resuming monetary tightening if price growth remains stubbornly above the central bank's goal.