Federal Reserve Governor Waller says disinflation progress may justify skipping a September rate hike
Federal Reserve Governor Christopher Waller said Thursday he is inclined to support keeping interest rates unchanged at the September 15–16 Federal Open Market Committee (FOMC) meeting, provided that upcoming inflation data continue showing signs of cooling.
His stance immediately moved markets and drew contrast with Chairman Kevin Warsh's tone at Jackson Hole last week.
Speaking at the Reuters NEXT Newsmaker Interview in Washington, D.C., Waller acknowledged that inflation remains "meaningfully above" the Fed's 2% target but argued that headline annual figures are painting a misleadingly grim picture of where price pressures actually stand.
“If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting,” Waller said.
Three-month core personal consumption expenditures (PCE) inflation, the metric he said best captures current trend, has fallen from 4.76% in February 2026 to 3.05% through July, a trajectory he described as "encouraging."
"I'm going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting," Waller said.
"What's the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%."
Headline PCE inflation for July stood at 3.7%, with core PCE at 3.3%. Waller said nonmarket services prices — estimated rather than directly observed — are artificially inflating those readings, and a pending methodology revision from the Bureau of Economic Analysis could reduce 12-month PCE inflation by several tenths of a percentage point.
He also said tariff-related price shocks have largely passed through, and that higher energy costs have not yet bled into the broader economy in the way some had feared.
Read more: Fed's Barr puts rate hike on the table if inflation stalls
A divergence at the top of the Fed
Waller's remarks landed less than a week after Warsh said at the Kansas City Fed's annual Jackson Hole symposium that recent softer monthly readings "do not tell me that underlying trends have meaningfully improved."
Market-implied hike probability had climbed well above 60% heading into Thursday's session. Following Waller's remarks, CME Group's FedWatch gauge showed that probability dropping to 48.4%, a fall of roughly 15 percentage points in a single session.
On the economic backdrop, Waller pointed to solid fundamentals: real GDP grew 1.8% annualized in the first half of 2026, the unemployment rate sits at a historically low 4.1%, and job creation has averaged approximately 60,000 per month through July.
Read more: Bond yields are climbing — but Fed's Williams calls it good news
What the next two weeks mean for brokers
The August consumer price index (CPI) and producer price index (PPI) reports, both due September 11, will effectively determine Waller's vote.
As rate increase pressure builds inside the Fed, the September meeting carries unusual weight — the central bank has held its benchmark rate at 3.5%–3.75% through five consecutive FOMC meetings in 2026.
Samantha Shelton, mortgage broker and president of Align Lending, told Mortgage Professional America ahead of the July meeting that a hike "wouldn't surprise" her given renewed inflation concerns tied to energy prices.
Melissa Cohn, Regional Vice President at William Raveis Mortgage, noted in prior MPA interview that "the bond market can rally on that kind of news" — a note of measured optimism for originators managing rate-sensitive clients through an extended period above 6%.
Waller was explicit that his position is entirely conditional: "If there is evidence that progress toward 2% inflation reversed in August, a small adjustment in our stance would help ensure that it resumes."
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