By Michael S. Derby and Howard Schneider
WASHINGTON, Sept 3 (Reuters) - Federal Reserve Governor Christopher Waller said on Thursday that if upcoming data confirms inflation pressures are cooling off, he is inclined to argue in favor of keeping interest rates steady at the U.S. central bank's next policy meeting.
"My decision on the appropriate stance of policy will be heavily influenced by what we learn about August inflation," Waller told a Reuters NEXT Newsmaker event in Washington.
"If there is
continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level," Waller said.
But he warned that a path to higher interest rates is also in play.
"If inflation comes in hot, I would consider a rate hike" at the September 15-16 meeting, Waller said. He noted that the current 3.50%-3.75% Fed policy rate is "only slightly restricting aggregate demand," and "it may not take much acceleration in inflation to nudge me into supporting tighter policy."
Waller said inflation is "meaningfully above" the 2% target but added that it "is making slow but continued progress on reaching" that goal.
In comments after his formal statement, Waller said he is inclined to be somewhat patient with the incoming data to confirm that price pressures are cooling.
"I'm going to paraphrase John Lennon here. Give disinflation a chance," Waller said. When it comes to monetary policy and its stance versus inflation, "I'm not going to say let's wait until next year, but let's just wait and see if we get some improvement on this."
INFLATION IS MAIN FOCUS
Investors have been pricing in solid odds of a quarter-percentage-point rate hike at this month's Fed meeting. In recent weeks a wide range of central bank officials has signaled ongoing concern about inflation, with some calling for rate hikes and others signaling openness to action to bring what have been persistent above-target price pressure readings back to the target.
Speaking last week at the Kansas City Fed's Jackson Hole economic symposium in Wyoming, Fed Chairman Kevin Warsh indicated that if inflation pressures did not moderate, action from the Fed to ensure they did was likely.
After the release of Waller's remarks, stock market futures were little changed while traders trimmed bets on a rate hike at this month's meeting. They now see about even odds of such a move, down from about 60% earlier. Bond yields, which move inversely to prices, also fell on shifting monetary policy expectations.
In his remarks on Thursday, Waller said his main policy focus at this time is on inflation, given the solid performance of the overall economy and the relative stability of the labor market.
Waller said that some of the factors that have been driving up inflation recently are not likely to remain big price pressure drivers.
"I don't see elevated energy prices and tariffs now as a significant source of ongoing inflation pressure," Waller said. The impact of the import tax increases has likely passed through the economy and higher energy prices tied to the war in the Middle East do not appear to be bleeding into other prices, he added.
But he noted that he did see some upside risks to inflation.
"Energy prices have moved up again and remain significantly higher than they were at the beginning of 2026, and the economy faces both pressure on technology goods prices related to the AI buildout and the possibility of more tariff increases."
(Reporting by Michael S. Derby, Ann Saphir and Howard Schneider; Writing by Michael S. Derby; Editing by Paul Simao)
