Federal Reserve Governor Christopher Waller announced that the upcoming August inflation data, due next week, will heavily influence his decision on interest rates in September. While his prepared remarks hinted at a possible rate increase, Waller later tempered these comments during a Q&A session, suggesting he expects the inflation data to come in at a "reasonable" level. He stated that he is inclined to support holding the policy rate at its current level if there is continued progress toward the Fed's 2% inflation goal, but would consider a rate hike if inflation data is "hot." This highlights a data-dependent approach to monetary policy, with a low tolerance for any renewed acceleration in inflation.
The broader economic context includes some signs of disinflation and solid GDP and consumption growth. The US Dollar (USD) Index saw bearish pressure, losing 0.6% on the day to 99.00. Underlying inflation is noted as doing better than core numbers suggest, and the labor market is in satisfactory shape. There are some upside risks to inflation, though wage growth is currently consistent with expectations of returning to 2%. Waller also acknowledged considerable uncertainty regarding the economic outlook due to military conflicts, trade policy, and AI, while noting that AI investment is a legitimate part of GDP and is expected to reliably raise productivity.
Despite the energy shock, the US economy has demonstrated resilience. Consumption and business investment grew at an annualized pace of 4.1% in Q2. WTI crude oil has averaged $82/bbl since July 8. CPI rose 0.1% month-over-month in July, with the year-on-year rate easing to 3.4%. Inflation excluding energy reached 2.55% year-over-year in July. Business sentiment has strengthened, and the ISM manufacturing index has remained in growth territory since January 2026. Input prices and delivery times have tightened, influenced by the Middle East situation and existing pressures from steel and aluminum prices and tariffs. Household confidence remains low, but real consumer spending has not contracted monthly since the onset of recent conflicts.
