Fed's Waller signals patience on rates, but keeps hike on table if inflation heats up

Federal Reserve Board Governor Christopher Waller speaks in Washington, D.C.(REUTERS)AI Quick ReadFederal Reserve Governor Christopher Waller said that he's inclined to be patient on rate policy while watching to see if price pressures ease. He further pointed out that his decision will be “heavily influenced” by August inflation data due next week.

When it comes to watching the upcoming inflation data, “I'm going to paraphrase John Lennon here: Give disinflation a chance, and let's, we can wait one meeting” and see how the data comes in, Waller said at a Reuters NEXT Newsmaker event in Washington.

"You want to take a chance to see if disinflation continues. But I'm not taking a big chance," he said.

Waller initially sounded open to supporting a rate hike in his prepared remarks, but softened that stance during the Q&A.

“If there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level,” Waller said Thursday at an event. “But if inflation comes in hot, I would consider a rate hike.”

Describing current policy as slightly restraining the economy, Waller added, “It may not take much acceleration in inflation to nudge me into supporting tighter policy. If there is evidence that progress toward 2% inflation reversed in August, a small adjustment in our stance would help ensure that it resumes.”

Still, he offered some optimism that price pressures were showing signs of improvement.

“While inflation remains meaningfully above the Federal Open Market Committee’s 2% goal, recent data suggest we are finally seeing some signs of disinflation,” he said.

He also worried about the risk of raising rates into a period of falling inflation, and said it’s possible the current monetary policy settings will return inflation to the central bank’s 2% target.

“At least let’s take a chance and see,” he said. “I’m not going to say let’s wait until next year, but let’s just wait and see if we get some improvement on this.”

Stocks rose, and bond yields fell following Waller's comments.

Futures contracts tied to the S&P 500 Index were up less than 0.2% as of 8:35 a.m. The dollar slipped. Bitcoin climbed above $80,000. The yen jumped as traders boosted wagers on Japanese interest-rate increases and were on high alert to the risk of further currency intervention. US oil advanced to around $92.

Spot gold rose 2.5% to $4,490.21 an ounce at 9:06 a.m. in New York. Silver was up 1.8% , while platinum and palladium also advanced.

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