Overview
- Waller said Thursday he would back keeping the federal funds rate at 3.50%–3.75% if August inflation shows continued disinflation but would support a 25 basis‑point hike if the data comes in hot.
- He pointed to a sharp fall in three‑month core inflation — from 4.76% in February to 3.05% through July — as evidence that short‑run price pressures are easing.
- Waller warned that a Commerce Department change in how it imputes non‑market service prices could mechanically shave roughly 20 basis points off reported PCE inflation, which should be considered when reading headline figures.
- Markets reacted quickly to his comments, moving the odds of a September hike toward a roughly even split on CME FedWatch and sending two‑year Treasury yields lower as traders priced in a slimmer chance of immediate tightening.
- The decision now hinges on next week’s data flow, including the Aug. 11 CPI and Sept. 10 PPI releases, and it highlights an internal Fed split with Chair Kevin Warsh urging caution about early optimism while Waller and New York Fed President John Williams favor a wait‑and‑see approach.