Federal Reserve Governor Christopher Waller said Thursday he would support keeping interest rates steady if further signs of disinflation emerge, though he seemed willing to tighten monetary policy if price pressures intensify.
Waller, who voted with the Federal Open Market Committee majority to hold rates steady in July, said that he saw "hints" of disinflation at the time. Three of the FOMC voters dissented from the majority at the July meeting, preferring an increase of 25 basis points.
In remarks made at an event hosted by Reuters, Waller said his next vote will be "heavily influenced" by August inflation data. The August consumer price index report is scheduled for release on Sept. 11, ahead of the FOMC's Sept. 15-16 policy meeting.
"While inflation remains meaningfully above the (FOMC's) 2% goal, recent data suggest we are finally seeing some signs of disinflation," Waller said. "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."
Personal consumption expenditure data show that three-month core inflation fell to 3.05% in July from 4.76% in February, he said. "That is a considerable improvement, and the speed of this downward trajectory is encouraging," Waller said.
However, Waller said he would support a rate hike if inflation accelerates.
"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," he 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."
Markets are now evenly split between a tighter policy later this month and another Fed pause, according to the CME FedWatch tool.
On Tuesday, Fed Governor Michael Barr said the central bank should raise interest rates unless inflation cools down, adding to a growing chorus of hawkish views from policymakers.
Fed Chair Kevin Warsh said Friday that the central bank's primary focus should be on prices, given that the US is doing well on the employment front. Cleveland Fed President Beth Hammack, one of the three dissenters at the July meeting, told CNBC last week that the FOMC should act now to cool inflation. Previously, Boston Fed President Susan Collins said that the central bank may have to tighten its monetary policy soon.
