Fed Director Waller announces intention to support interest rate freeze if price indicators improve in the future

Christopher Waller, director of the U.S. Federal Reserve, announced on the 3rd (local time) that he intends to support freezing the base interest rate if inflation pressure is confirmed to ease in future price indicators.

Director Waller said at a video event hosted by Reuters on this day, "Inflation is significantly above the Fed's target of 2%," but "recent indicators are finally showing some signs of disinflation (slowing price rises)."

He said, “If this trend continues in the indicators to be announced over the next two weeks, we will be inclined to support maintaining the base interest rate at the current level.”

Director Waller mentioned that the personal consumption expenditures (PCE) price index in July and the core PCE price index excluding highly volatile food and energy each rose 0.2% compared to the previous month.

Regarding the PCE price index rising 3.7% year-on-year and the core PCE price index rising 3.3%, he added, "While it is important to acknowledge the true impact the 12-month growth rate has had on businesses and consumers, these numbers are not the best indicator of where inflation currently is."

This is a somewhat different comment from Federal Reserve Chairman Kevin Worth, who assessed the recent inflation rate as worrisome.

At the Jackson Hole Annual Economic Policy Symposium last week, Chairman Wash raised the market's expectations of an interest rate hike by saying, "We need to be confident that inflation is moving clearly and at a sufficient pace toward the Fed's target. If not, we have work to do."

Director Waller also did not close the possibility of an interest rate hike.

He pointed out that there is significant uncertainty surrounding the impact of military conflict, trade policy, and artificial intelligence (AI) on future prices and economic activity.

“If the August indicators show that this improvement (slowing price growth) was temporary, it may be appropriate to raise interest rates at the Federal Open Market Committee (FOMC) in September,” he said.

He also announced that he would place more weight on the August price index to be released next week than to the August employment report to be released the next day.

He predicted that the August employment report "will not deviate significantly from the trends we have seen recently."

After Director Waller's remarks, the outlook for an interest rate hike in September is decreasing.

The possibility of an interest rate increase this month, as reflected by the market, has decreased from about 60% to around 50%.

U.S. Treasury yields are also falling.

At 10:03 a.m. Eastern time, the benchmark 10-year U.S. Treasury bond interest rate was 4.758%, down 2.6bp (1bp = 0.01% point) from the previous day.