Waller leans toward rate pause but keeps option open for hike
Federal Reserve Governor Christopher Waller said he is inclined to support holding the policy rate steady if incoming data shows continued disinflation. Speaking on the economic outlook, Waller noted that a rate increase remains possible if August inflation data shows progress has stalled.
Cooling inflation alongside solid growth
Waller pointed to signs of easing price pressures, noting that three-month annualized core PCE inflation fell from 4.76 percent in February to 3.05 percent in July.
Twelve-month PCE inflation stood at 3.7 percent, while core PCE registered 3.3 percent.
Real GDP expanded at an annual rate of 1.8 percent in the first half of 2026, driven by a 3.0 percent rise in real private domestic final purchases and robust investment in artificial intelligence data centers.
Labor market conditions remained stable, with monthly job growth averaging 60,000 through July and the unemployment rate edging down to 4.1 percent.
Waller expects real GDP growth to exceed 2 percent for the full year.
Defining the strike zone
Waller framed his policy approach through conditional communication, comparing his reaction function to a baseball umpire's strike zone where clear parameters guide market expectations.
He noted that forward guidance is “most warranted when the policy rate is at the effective lower bound.”
With monetary policy currently judged as “only slightly restricting aggregate demand,” Waller warned that any reversal in August disinflation could warrant an immediate policy tightening.
Precision theater for volatile data
Waller sets a high bar for easing by treating a single hot inflation print as grounds for an immediate rate hike.
Tying decisions so closely to noisy monthly data creates unnecessary volatility for financial markets.
The strike zone analogy offers welcome transparency but reveals a lingering bias toward tighter policy.