Waller of Fed Hints at Possible Support for September Rate Hold as Disinflation Signs Emerge

Contrasts with Chair Kevin Warsh's Remarks

Focus on Next Week's CPI Inflation Data

Federal Reserve Board Governor Christopher Waller has suggested the possibility that he may support holding rates steady at the upcoming Federal Open Market Committee (FOMC) meeting in September. He indicated that the recent inflation trend is showing signs of disinflation, allowing room to wait until the next meeting.

Christopher Waller, Federal Reserve Board Governor. Photo by Yonhap News

According to CNBC on September 3 (local time), Governor Waller said in a Reuters interview, "If the trend continues in the indicators to be released over the next two weeks, I would be willing to support maintaining the federal funds target range at the current level."

He acknowledged that current inflation is "meaningfully above" the Fed's target of 2%, but assessed that "finally, some signs of disinflation are beginning to appear" in recent trends.

Governor Waller stated, "To borrow the words of John Lennon, we have to give disinflation a chance," adding, "We can afford to wait for one meeting." He emphasized, "Even if we raise rates by 0.25 percentage points right now, it does not immediately bring the Consumer Price Index (CPI) down to 2%."

Immediately after Waller's remarks, market expectations for a September rate hike fell significantly. According to the CME FedWatch, the probability of a rate increase at the FOMC on September 15-16 dropped to 48.4%, about 15 percentage points lower than the previous day.

However, Governor Waller also made it clear that he could change his stance depending on future inflation data. He said, "I believe current policy is only slightly restraining aggregate demand," and added, "If inflation picks up again even a little, my position could shift toward supporting more restrictive policy."

He continued, "If there is evidence in the August inflation data that progress toward the 2% target has been reversed, making a slight policy adjustment could help restore the trend of slowing inflation."

The key inflation indicators the Fed will review before the September FOMC are the Consumer Price Index (CPI) and Producer Price Index (PPI), which are scheduled to be released next week. Both indicators have a significant impact on the calculation of the Personal Consumption Expenditures (PCE) Price Index, which the Fed prioritizes most highly.

Governor Waller's comments contrast with the hawkish remarks made last week by Fed Chair Kevin Warsh. At the Jackson Hole Economic Symposium, Chair Warsh said that the recent slowdown in monthly inflation is not enough to conclude that the underlying inflation trend has improved meaningfully. He further noted that if inflation does not improve as expected, "there are things we will need to do," implying the possibility of additional rate hikes.

In contrast, Governor Waller assessed that the underlying trend in recent inflation is more favorable than surface-level numbers suggest. While headline PCE inflation in July was 3.7% and core PCE was 3.3%, both year-on-year, Governor Waller pointed out that current inflation trends should not be judged by annual growth rates alone.

He noted that the three-month increase in the Fed's preferred inflation indicator has declined from 4.76% in February to 3.05% recently, describing this as "a significant improvement and an encouraging pace of decline."

Governor Waller also pointed out that some non-market service prices, which are calculated as estimates rather than actual market transaction prices, may be making inflation appear higher than it actually is. He further explained that the U.S. Bureau of Economic Analysis (BEA) is revising its method for calculating the PCE Price Index, which could lead to a downward adjustment in early-year inflation rates in the future.

This content was produced with the assistance of AI translation services.