The Zhitong Finance App learned that Federal Reserve Governor Christopher Waller said on Thursday that if the upcoming data confirms that inflationary pressure is cooling down, he is inclined to support keeping interest rates unchanged at the next Federal Reserve policy meeting. In a speech prepared to be delivered at an event, Waller said, “My decision on the appropriate policy position will be largely influenced by the information we have learned from the August inflation data.” “If inflation continues to progress towards our 2% target, then I am willing to support maintaining the policy interest rate at the current level.”
However, Waller also warned that the path to raising interest rates is also still within the scope of consideration. He said, “If the inflation data is hot, I will consider raising interest rates at the September 15-16 meeting.” He pointed out that the current US Federal Reserve policy interest rate of 3.50% to 3.75% “poses only a slight limit on aggregate demand,” and “inflation may not need to accelerate too much, which may prompt me to support tightening the policy instead.”
After keeping interest rates unchanged for five consecutive times this year, the Federal Reserve will hold another Federal Open Market Committee (FOMC) meeting from September 15 to 16. Federal Reserve Chairman Walsh sent a hawkish signal at the Jackson Hole annual meeting of global central banks last Friday, pushing the money market to bet that the probability of the Fed's interest rate hike this month was once close to 70%. However, after the “small non-farmers” announced on Wednesday fell short of expectations and hit a new low at the end of the year, expectations for interest rate hikes have cooled down somewhat. As of press release, the CME “Federal Reserve Watch” tool shows that the market currently believes that the probability that the Fed will raise interest rates this month is 50.4%.
Before the Federal Reserve actually makes a decision, it will also obtain a batch of key economic data, and the current inflation and employment performance have not formed a clear consensus that interest rate hikes are urgently needed. Among them, the job market will be one of the important observation windows. The US non-farm payrolls data has been weak for three consecutive months. If the August non-farm payrolls data released this week continues to weaken, it will further weaken the reason for the Federal Reserve to immediately tighten its policy.
Inflation data is also critical, and is considered by some market participants to have more weight in the Federal Reserve's monetary policy decision process. In July, the US PCE price index rose 3.7% year on year, and the core PCE rose 3.3%; however, excluding extreme price fluctuations, the Dallas Fed index was only 2.3%, which is already clearly close to the 2% policy target. Before the September meeting, the Federal Reserve will obtain a series of inflation data such as CPI and PPI. As long as there are clear signs of a cooling in inflation, the current rate hike pricing is likely to fall rapidly.
In recent weeks, many Federal Reserve officials have expressed continuing concerns about inflation. Some officials have indicated that they are willing to take action to bring inflation readings that remain above the target level back to the target level. Regarding inflation, Waller said that the level of inflation is “significantly above” the Federal Reserve's 2% target, but it is “slowly but steadily moving towards” this target. He also pointed out that given the steady performance of the US economy as a whole and the relatively stable labor market, the main focus of his current policy is inflation.
Waller said that some of the factors driving up inflation recently are unlikely to continue to be an important source of price pressure. He said, “Currently, I don't think high energy prices and tariffs are a significant source of continuing inflationary pressure.” He added that the impact of the increase in import taxes is likely to have spread to the entire economy, while the rise in energy prices associated with the Middle East war does not seem to have spread to other prices.
But he also pointed out that he did see some risk of rising inflation. He said, “Energy prices have risen again and are still significantly higher than the level at the beginning of 2026. At the same time, the economy is facing pressure from two sides. One is upward pressure on the price of technology products related to the AI construction boom, and the other is the possibility that tariffs may rise further.”
On the day before Waller delivered his speech, the Federal Reserve's “top three” and New York Federal Reserve Chairman Williams said that there is evidence that as the impact of tariffs gradually subsides, inflation continues to cool down, and the rise in energy prices has not spread to other service sectors. “The recent data is encouraging,” Williams said in an interview on Wednesday. In fact, I see that the inflation trend is slowly declining as some of the effects of tariffs are slowly becoming a thing of the past.” He added that currently the biggest factor driving inflation is still tariffs and rising energy prices due to the Middle East conflict, and “there is still some impact of higher inflation in the service sector.”
Compared to the slightly moderate remarks made by Waller and Williams, Federal Reserve Governor Barr warned that inflation has been above target levels for more than five consecutive years, and there is a risk that price pressure will solidify. He said he is prepared to support interest rate hikes if US inflation fails to ease further. His latest statement means that in a situation where inflation has been slow to return to the Federal Reserve's target, he is not ruling out a new tightening of monetary policy.