Waller's Stance and the Inflation Picture
Federal Reserve Governor Christopher Waller said at a Reuters event on Sept. 3 that his decision on interest rates will likely come down to the August inflation report, scheduled for release on Sept. 11. He stated that if there is continued progress toward the 2% goal, he would support holding the policy rate at its current level, but if inflation comes in hot, he would consider a rate hike.[S1]
Inflation has stayed above the Fed's 2% target for years, worsened by the Iran war that began in late February, which raised oil and gas prices. However, recent signs suggest cooling: July core inflation rose 0.2%, with headline year-over-year inflation at 2.5%, in line with expectations. The Fed's preferred gauge, the PCE price index, came in slightly hotter than expected.[S1]
The FOMC's Divided Vote
During the most recent FOMC gathering, the committee held the federal funds rate steady at 3.50%-3.75%. However, three of the twelve voters—Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan—opposed the decision, advocating for a 25-basis-point increase. Should Governor Waller side with them, the count favoring a hike would rise to four.[S1]
Fed Governor Michael Barr has also said he would favor raising rates if inflation does not appear to be moderating sufficiently. Other members could shift toward a hike if the next report is hot. The market has struggled to gauge Chair Kevin Warsh's view on inflation, but as chair, his role is to build consensus, and more members favoring a hike could give him latitude to move.[S1]
What to Watch Next
An unprecedented 6-6 tie at the FOMC would leave rates unchanged by default. According to the CME Group's FedWatch tool, the odds of a rate hike versus holding were roughly 50-50 as of this writing. The August inflation report is expected to serve as the tiebreaker.[S1]
