Federal Reserve Governor Christopher Waller said on Thursday that he would support keeping the federal funds rate at its current 3.50%-3.75% target at the September 15-16 FOMC meeting if incoming data over the next two weeks continues to show disinflation. He made the remarks during a Reuters NEXT Newsmaker Interview in Washington.
Markets reacted quickly. Treasury yields slipped to session lows and S&P 500 futures rose after his comments, as traders pared back expectations for a September rate increase. Pricing in Fed funds futures and swaps markets moved toward a roughly even chance of a hike, reflecting a near 50-50 split in expectations.
Waller’s stance was presented in a notably data-driven way compared with the more hawkish framing delivered at Jackson Hole on August 28 by Fed Chair Kevin Warsh, whose speech had pushed market-implied odds of a September hike up to roughly 60%-66% from about 35%. Waller described the pace of disinflation since February as "encouraging," while also highlighting that 12-month core PCE inflation remains at 3.3%, well above the FOMC’s 2% objective.
He did not close the door on further tightening. "If inflation comes in hot, I would consider a rate hike," Waller said, adding that he currently judges policy to be only slightly restricting aggregate demand and that it might not take much of an acceleration in inflation to push him toward supporting tighter policy. He said his September vote will be "heavily influenced" by the August Consumer Price Index reading, framing that single monthly print as the pivot point for the rate debate heading into the FOMC meeting.
Waller also drew attention to an upcoming Commerce Department methodology change for estimating financial-services fees, which he expects could reduce the 12-month PCE inflation rate by "a few tenths of a percentage point." He described the adjustment as a "welcome measurement correction," and observed that nonmarket services prices - which are imputed rather than directly observed - accounted for roughly half of July’s core PCE increase, making the underlying inflation picture look worse than he believes it actually is.
The commentary comes amid a shifting market backdrop. One global bank has recently raised its forecast for the two-year Treasury yield to 4.20% at end-2026 from 3.85%, and for the 10-year yield to 4.65% from 4.30%, citing a more hawkish outlook for the central bank. That institution now sees a "nearly even likelihood" of a 25 basis point hike in September and described the FOMC debate as "on a fine edge."
At the same time, economists at a major U.S. bank maintain a baseline of no move in September. Their chief economist said a September hike is possible if August CPI and PPI prints come in firmer, but that the team continues to expect monthly core CPI and PCE inflation of about 0.2% in August and that the FOMC will remain on hold.
Analysis published this week also flagged the potential market consequences of a September rate increase, noting that a hike could amplify seasonal pressures in September for equities and potentially place the S&P 500 at risk of a roughly 5% near-term correction, even as a large investment bank continues to project a year-end S&P 500 target of 8,000.
Two economic releases stand between markets and the Fed's decision on September 16. First, August Nonfarm Payrolls, due on Friday, September 4, which Waller said he expects will not deviate markedly from recent trends but warned that a surprising result could alter his view. Second, and more consequential in his view, is the August CPI report due on Thursday, September 11 - exactly one week before the FOMC. Waller explicitly identified that CPI print as the decisive input for his vote: continued disinflation in that reading would lock in his support for a hold, while a hotter reading could shift him toward supporting a hike.
With some forecasters characterizing the odds of a September hike as nearly even and others maintaining a base case of a benign 0.2% monthly core print for August, the September 11 CPI release is positioned to act as the market’s informal rate verdict before policymakers convene.
In short, Waller’s remarks framed the September policy decision as conditional on a tight window of incoming data, with the August CPI print elevated to decisive status and with measurement revisions to financial-services fees potentially lowering officially measured PCE inflation by a few tenths of a percentage point. Market pricing and analyst forecasts reflect a narrow margin for error - a modest upside surprise in inflation or a shock in payrolls could tip the balance back toward tightening, while continued disinflation would support the case for a pause.
Summary
Christopher Waller said he would support holding the federal funds rate at 3.50%-3.75% at the September FOMC meeting if disinflation continues over the next two weeks. He emphasized that the August CPI reading will be the decisive input for his vote and noted that a Commerce Department measurement change could lower 12-month PCE inflation by a few tenths of a percentage point. Market expectations shifted toward a roughly even chance of a September rate hike, with Treasuries falling and S&P 500 futures rising after his remarks.
Key points
- Waller will support a September hold if incoming data continue to show disinflation; the August CPI print is pivotal for his vote - impacts: fixed income, equities, consumer prices.
- He highlighted a Commerce Department methodology change that could reduce measured 12-month PCE inflation by a few tenths of a percentage point and said nonmarket services prices inflated July's core PCE - impacts: inflation measures, economic statistics, policy assessment.
- Market pricing for a September rate hike has moved toward a near 50-50 split; major forecasts are mixed with some lifting medium-term Treasury yield forecasts and others remaining on hold - impacts: Treasury markets, equity volatility, corporate funding costs.
Risks and uncertainties
- August CPI could print hotter than expected, which Waller said would make him consider a rate hike - impacts: monetary policy, bond yields, equity markets.
- Nonfarm Payrolls could surprise materially on September 4; Waller said a shock in payrolls could change his calculus - impacts: labor-sensitive sectors and interest rate expectations.
- Measurement changes to financial-services fees may alter the reported inflation path by a few tenths of a percentage point, complicating assessment of underlying price pressures - impacts: inflation statistics and policy signals to markets.