Federal Reserve Governor Christopher Waller said on Wednesday that he would be inclined to support holding the federal funds rate steady at the Fed's September 15-16 meeting -- but only if next week's August inflation report confirms that the disinflation trend is continuing. His remarks sent bond yields lower and triggered a broad equity rally, with the Dow Jones Industrial Average climbing 635 points, or 1.19%, and rate-hike odds for September falling roughly 12 percentage points to about 55%.
"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, borrowing a line from John Lennon: "Give disinflation a chance. We can wait one meeting."
The conditional nature of his remarks is the key takeaway. Waller explicitly acknowledged that inflation remains meaningfully above the Fed's 2% target, with headline consumer prices near 3.7% and core inflation around 3.3% in July. He framed his willingness to pause as contingent on the upcoming data -- not as a commitment to a longer hold. If the August numbers surprise to the upside, Waller signaled, he would not hesitate to support further tightening.
That qualifier puts the August Consumer Price Index report, due next week, in the driver's seat for the September decision. Rate-sensitive assets -- including homebuilders, long-duration Treasuries, and growth stocks -- will swing on that single print. The market reaction on Wednesday reflected optimism that the Fed will step back from a hike, but the underlying uncertainty remains: one hotter-than-expected inflation reading could reverse the repricing entirely.
The Dow surged to close at roughly 53,670, while the S&P 500 gained 1.25% and the Nasdaq 100 added 1.46%, marking the strongest session since early August. Treasury yields retreated as traders priced in a greater chance of a hold. The rally was broad-based, with industrials and financials among the top-performing sectors.
Waller's dovish lean also deepens a visible split within the Fed itself. Fed Chairman Kevin Warsh signaled at last month's Jackson Hole symposium that he remained open to additional rate increases if inflation proved persistent. By contrast, Waller argued that monetary policy is only slightly restrictive and that the central bank can afford to wait for confirmation that disinflation is taking hold. The divergence within the FOMC adds a layer of uncertainty to the September meeting, with the outcome now hinging entirely on whether the August data cooperates.
Sources
- [AP News: The Fed's Waller says inflation report next week is pivotal in making call on rate hike](https://apnews.com/article/inflation-federal-reserve-waller-5506d6b43cc2e3d4144f622f8cc29e43)
- [24/7 Wall St.: The Fed's Waller Says He'd Hold Rates Steady -- But His If Is Doing a Lot of Heavy Lifting](https://247wallst.com/investing/2026/09/03/the-feds-waller-says-hed-hold-rates-steady-but-his-if-is-doing-a-lot-of-heavy-lifting/)
