Fed Governor Waller indicates he will support holding rates steady at September meeting

Federal Reserve Governor Christopher Waller said Thursday he is leaning toward keeping interest rates steady at the central bank's September meeting provided there are no surprises from upcoming inflation data.

In remarks that seem to contrast with statements last week from Chairman Kevin Warsh , Waller expressed confidence in the current inflation trends, saying that tariff impacts likely have been muted and higher energy prices haven't had a substantial impact on other parts of the economy.

While he conceded that inflation is "meaningfully above" the Fed's 2% target, he noted that recent trends "suggest we are finally seeing some signs of disinflation."

"If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting," Waller said in remarks for a Reuters interview.

Market-implied odds for a rate hike at the Sept. 15-16 meeting dropped sharply following the comments, with traders now pricing in just a 48.4% probability, down about 15 percentage points from Wednesday, according to the CME Group's FedWatch gauge.

"I'm going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting," Waller said. "What's the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%."

The policymaker did add caveats, noting that if there are any indications between now and the meeting, he could change course.

"I judge that policy is currently only slightly restricting aggregate demand, and it may not take much acceleration in inflation to nudge me into supporting tighter policy," Waller said. "If there is evidence that progress toward 2% inflation reversed in August, a small adjustment in our stance would help ensure that it resumes."