Waller Muddies Outlook on September Rate Hike

Federal Reserve governor Christopher Waller weighed in on the possibility of an interest rate hike this month, saying it will largely depend on next week's inflation report. The government is set to release August inflation figures on September 11, and if they show continued cooling, Waller would be inclined to keep rates unchanged.

If inflation comes in hot, however, he would consider a rate hike. Currently, borrowing costs are only slightly restricting consumer and business demand, according to Waller. He noted that it may not take much acceleration in inflation to nudge him into supporting a rate increase.

This statement has significant implications for the Fed's upcoming meeting on September 15-16. Several members of the Fed's rate-setting committee have voiced concerns about high price increases, suggesting a rate hike may be necessary. However, others believe that inflation is slowly cooling and higher borrowing costs are not needed.

Warsh's speech last week at the Fed's annual economic symposium in Jackson Hole, Wyoming, contributed to the steady rise of longer-term bond yields this week, which has lifted mortgage and auto loan rates for consumers. Investors raised the odds of a rate hike in September to nearly 65% before Waller's comments, but they fell to roughly 50-50 after his statement.

Waller acknowledged that he is heavily focused on one upcoming report. He said looking at near-term data is necessary to pick up on any changes in trends. 'I'm willing to sit and wait and be patient' to see if the next inflation report also shows it declining, Waller said. 'But if it reverses, then you know it's time to pull the trigger and hike rates.'

Other Fed officials, including Vice President JD Vance, have expressed differing views on interest rate policy. Vance reiterated the Trump administration's view that the Fed should actually cut its benchmark rate, rather than raise or keep it unchanged.