Fed Governor Waller Links Rate Decision to Upcoming Inflation Report

Federal Reserve governor Christopher Waller stated Thursday that an upcoming inflation report will largely determine his stance on an interest rate hike later this month.

The government plans to release August inflation figures on September 11. Waller indicated he would support keeping the Fed’s benchmark interest rate unchanged if the report shows inflation continues to cool. However, he would consider a rate hike if inflation comes in hot. Waller noted that borrowing costs are only slightly restricting consumer and business demand, adding that it may not take much acceleration in inflation to nudge him into supporting a rate hike.

Waller, an outspoken member of the Fed’s seven-person governing board, suggested a rate hike at the September 15-16 meeting is not a certainty. Stock prices rose and bond yields fell following his remarks. His comments contrast with statements last week from Fed Chair Kevin Warsh, who said at the Jackson Hole economic symposium that inflation had not shown sufficient improvement and the central bank might have more work to do.

Warsh's remarks led Wall Street investors to sharply increase their bets on a rate hike. Waller expressed encouragement by signs of slowing inflation over the past two months. The Fed’s preferred gauge showed prices decreased 0.1% from May to June and rose 0.2% from June to July. This pace would bring inflation closer to the Fed’s 2% annual target.

Last month, the government reported yearly inflation at 3.7% by the Fed’s measure. Waller said, "Give disinflation a chance. We can wait one meeting." He added that hiking 25 basis points is not going to bring the CPI down to 2%. He maintained that he could change course if new indications emerge before the meeting.

The Bureau of Labor Statistics will release consumer and producer price indexes next week, which inform the Commerce Department's personal consumption expenditures price index, the Fed's primary inflation barometer.