Fed Governor Christopher Waller said Thursday he would be inclined to support holding interest rates steady at the September meeting if inflation data keeps improving. His comments pulled market bets on a rate hike back down and pushed Treasury yields and the dollar lower, underscoring a split among Fed officials ahead of the vote.
Federal Reserve Governor Christopher Waller said Thursday he would be inclined to support holding interest rates steady at the Fed's September 15-16 meeting if incoming data confirms that inflation pressures keep cooling. He made the remarks in prepared comments to a Reuters NEXT Newsmaker event in Washington.
Waller ties his vote to August inflation data
Waller said his decision will be heavily influenced by what officials learn about August inflation before the vote. He added that the current 3.50%-3.75% Fed policy rate is only slightly restricting demand, so it may not take much of an inflation pickup to push him toward supporting tighter policy. According to Reuters: "If inflation comes in hot, I would consider a rate hike" at the September 15-16 meeting.
He also said energy prices and tariffs are unlikely to stay major drivers of inflation, since the effect of import tax increases has likely passed through the economy. He still flagged risks, however, pointing to renewed increases in energy prices and to pressure on technology goods tied to the AI buildout and possible further tariff hikes.
Warsh's hawkish tone had pushed rate-hike bets higher
Waller's remarks follow a hawkish Jackson Hole speech last week by Fed Chair Kevin Warsh, who signaled the Fed still had work to do unless inflation showed swift progress. That speech had pushed traders toward pricing in a rate hike, but Waller's comments pulled those bets back down: markets now put the odds of a September increase at roughly 50%, down from 59% before he spoke.
Three of the 12 voters on the Federal Open Market Committee backed a quarter-point rate hike at the Fed's July meeting, when officials held borrowing costs in the 3.5%-3.75% range.
Yields and the yen move on the comments
The two-year Treasury yield, which is sensitive to rate expectations, fell 0.05 percentage points to 4.33% after Waller spoke. The dollar dipped against major currencies, while the yen extended overnight gains to trade up almost 2% at ¥155.60.
The Fed's preferred inflation gauge, the headline personal consumption expenditures index, stands at 3.7% and has exceeded the central bank's 2% target for five and a half years.
Sources: Financial Times, Investing.com
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