Federal Reserve Governor Christopher Waller signaled on Thursday that he is inclined to support maintaining the current interest rates at the Fed's September 15-16 meeting, assuming inflation data remains on its current path. His comments contrast with those of Fed Chairman Kevin Warsh from the previous week, who had indicated skepticism about recent inflation improvements. Waller acknowledged that inflation is still significantly above the Fed’s 2% target but pointed to emerging signs of disinflation that give him confidence in holding rates steady.

Waller emphasized that tariff impacts and higher energy prices have not substantially influenced inflation across the broader economy. He highlighted that the three-month inflation rate, measured by the Fed’s preferred gauge, has declined notably from 4.76% in February to 3.05% recently, reflecting meaningful progress beneath the surface of headline numbers. He also cautioned that some inflation measurements may overstate the situation due to estimation methods used for nonmarket services prices, which tend to push inflation figures higher.

Despite his current preference to pause on rate hikes, Waller made clear that he remains data-dependent and open to tightening policy if inflationary pressures rebound. He indicated that inflation reports due in the next two weeks, specifically the consumer and producer price indexes from the Bureau of Labor Statistics, will be crucial in shaping his stance. If inflation progress reverses, he expressed readiness to support a modest rate increase to keep inflation trending toward the Fed’s target.

Following Waller’s remarks, financial markets adjusted their expectations significantly, with the probability of a rate hike at the upcoming meeting falling by about 15 percentage points to just under 50%, according to CME Group’s FedWatch tool. Waller’s somewhat more dovish tone offers a counterbalance to Warsh’s hawkish position and suggests a cautious approach by the Fed in the near term as it assesses whether disinflation trends will sustain.