Waller signals conditional hold on rates, cites disinflation signs
Fed Governor says he will back a steady federal-funds rate if August data confirm easing inflation, otherwise may support a hike at the Sept. 15-16 FOMC meeting
In remarks delivered today, Governor Waller said he would be inclined to support holding the target for the federal funds rate at its current setting if the data due over the next two weeks confirm that the recent signs of disinflation persist. He added that, should August inflation data show a reversal, he would consider a rate increase when the Federal Open Market Committee meets on September 15 and 16.
Waller noted that real gross domestic product grew at a 1.8 percent annual rate in the first half of 2026 and that real private domestic final purchases rose 3 percent over the same period. He described consumer-spending growth in the second quarter as solid after a slow start, and said business investment has been strong throughout, with data-center plans indicating rapid growth tied to the AI buildout.
On the labor front, the Governor reported that job creation has averaged about 60,000 a month through July and that the unemployment rate fell to 4.1 percent in July, a level he characterized as historically low and slightly below the median long-run equilibrium rate cited by FOMC participants. Layoffs and initial claims for unemployment insurance remain low.
Inflation, he said, remains well above the FOMC's 2 percent goal. In July, personal consumption expenditures rose 0.2 percent and core PCE rose 0.2 percent. Over the past 12 months, PCE prices are up 3.7 percent and core PCE 3.3 percent. The three-month core inflation rate has fallen to 3.05 percent, down from 4.76 percent in February, indicating a "considerable improvement." He flagged nonmarket services prices as a factor that may overstate core inflation.
Waller concluded by outlining his communication strategy, describing a "reaction function" that links specific data outcomes to his policy stance. He emphasized that this conditional approach is not a commitment but a way for consumers, businesses, and investors to anticipate how his vote may shift in response to future economic information.
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