Fed’s Waller Open to Holding Rates if Inflation Cools

Christopher Waller is leaving the door open in both directions ahead of the Federal Reserve’s next interest-rate meeting. His decision, he said, will depend largely on what the central bank learns from August inflation data.

“If inflation comes in strong, I would consider a rate increase,” Waller said at an event in Washington, referring to the Sept. 15-16 meeting. But if inflation continues making progress toward the Fed’s 2% target, he said he would favor another pause.

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My decision on the appropriate stance of monetary policy will depend materially on what we learn about inflation in August.

The Fed’s benchmark rate currently stands at 3.50% to 3.75%. Waller said that level is dampening overall demand only slightly, meaning inflation would not need to rise sharply to make him support tighter monetary policy.

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If inflation comes in strong, I would consider a rate increase.

Inflation remains “well above” the Fed’s target, Waller said, although he also sees “slow but steady progress.” Traders took his comments as reducing the likelihood of a rate increase. They now put the odds at just above 50%, compared with roughly 60% earlier.

The Fed recently kept its key policy rate within the current target range. Fed Chair Kevin Warsh has indicated that persistent inflation could require action, while Governor Michael Barr said inflation had remained above the central bank’s target for more than five years and that officials would need to act decisively if it failed to fall enough.

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Slow but steady progress.