Fed's Waller: Inclined to support policy hold if August inflation data shows progress
While speaking at the Reuters NEXT Newsmaker event in Washington, Federal Reserve Governor Christopher Waller said on Thursday that if August Consumer Price Index data confirms inflation pressures are cooling off, he is inclined to support holding the policy rate steady at the September policy meeting.
Waller keeps September hike on the table as inflation data call remains pivotal
Fed’s Waller delivers a moderately hawkish message with conditional flexibility, as reflected in a FXS Speechtracker score of 6.1, slightly below the 6.3 historical average and signaling a tone just under the established baseline. The key remark that policy will likely be held steady in September if August inflation shows “continued progress,” but that a “hot” print could trigger a rate hike, underscores a data-dependent reaction function and a low tolerance for any renewed inflation acceleration even as signs of disinflation and solid GDP and consumption are acknowledged. Overall, the speech balances recognition of improving underlying inflation with a clear willingness to tighten again if progress reverses.
The FXS Fed Sentiment Index fell by 2.06 points to 125.38, indicating a modest pullback in perceived hawkishness relative to recent communications. However, with the index still well above the neutral 100 threshold, the Fed remains firmly in hawkish territory despite the decline, consistent with Waller’s readiness to consider a September hike and the slightly softer but still restrictive tone captured by the FXS Speechtracker.
Market reaction
The US Dollar (USD) Index stays under bearish pressure in the American session and was last seen losing 0.6% on the day at 99.00.
Key takeaways
"If August inflation data comes in hot, he would consider a September rate hike."
"Communicating of reaction function helps public in planning."
"Ffinally seeing some signs of disinflation in recent data."
"May not take much inflation acceleration to support tighter policy."
"If August inflation data shows progress has reversed, small adjustment to policy rate would help ensure progress resumes."
"GDP growth continuing at a solid pace, equity price gains should sustain consumption growth."
"Seeing considerable uncertainty about how outlook for prices, economy is affected by military conflicts, trade policy, AI."
"Inflation is significantly elevated above Fed's 2% target."
"AI investment is legitimate part of GDP; AI will reliably raise productivity."
"Elevated energy prices, tariffs not a significant sources of ongoing inflation pressure."
"Underlying inflation doing better than core numbers suggest."
"Labor market also in satisfactory shape, expecting more of the same in August jobs report."
"Seeing some upside risk to inflation, though wage growth is consistent with expectation it is returning to 2%."
"Personal consumption expenditures, core PCE not best guide for where inflation is."
"Seeing considerable improvement with encouraging speed in three-month core inflation."
"Pending revisions to commerce department's non-market price estimate could lower 12-month PCE by a few tenths of a percentage point."
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
