Fed's Waller gives conditional guidance due to 'considerable uncertainty' over inflation outlook

Federal Reserve governor Christopher Waller announced on Thursday that the upcoming inflation report next week will be the key factor in deciding whether the central bank raises interest rates later this month or not. The government is set to release August inflation figures on September 11. If the report indicates that inflation is continuing to decrease, Waller would be open to maintaining the Fed's benchmark interest rate unchanged.

However, if the inflation report shows that inflation is still accelerating, Waller indicated that he would consider a rate hike. The borrowing costs are currently "slightly restricting" consumer and business demand, but Waller suggested that even a modest acceleration in inflation could prompt a rate increase. Waller, who is a vocal member of the Fed’s seven-person governing board, added weight to the significance of the upcoming inflation data.

Several Fed members have expressed concerns about the high price increases, suggesting that a rate hike might be necessary. On the other hand, some have argued that inflation is gradually cooling and that higher borrowing costs are not required. Fed Chair Kevin Warsh recently stated that inflation has not shown enough improvement, and the Fed may need to take further action, suggesting that a rate hike could be considered at the next meeting on September 15-16.

Wall Street investors have increased their expectations for a rate hike at the September meeting following Warsh's comments. Some bond yields have also risen in response to Warsh's remarks, intensifying the significance of the September meeting.