Federal Reserve Governor Chris Waller signaled support for a pause in rate hikes at the central bank's September meeting, provided August inflation data show continued disinflationary progress.
Waller said in a Reuters virtual event that recent data suggest disinflation is underway, even though inflation remains meaningfully above the Federal Open Market Committee's 2 percent target. If progress continues, he said he would back a hold.
Markets moved decisively. Rate-hike odds for September dropped to roughly 50 percent—a true coin-flip from earlier pricing. Two-year yields fell sharply as traders repriced rate expectations across the front end of the curve.
Waller's remarks stand in tension with Fed Chair Kevin Warsh's hawkish Jackson Hole speech last week, where Warsh said the Fed had "work to do" absent swift price progress. The divergence reflects fractures visible in July's FOMC vote, when three of 12 voting members supported a quarter-point increase. Waller's pivot suggests the hawkish coalition may be weakening.
On forward guidance, Waller aligned with Warsh that explicit guidance is inappropriate in most settings, though both see rare cases where it serves a purpose.
Waller has been consistent on fiscal discipline. In April, he backed removing the "easing bias" language from policy statements after the Fed's preferred inflation gauge hit 3.8 percent. In July, he explicitly rejected the notion that the Fed should suppress rates to ease U.S. government debt service—a pushback against deficit-spending pressures from Washington.
