Waller, The Economic Outlook and Some Comments on My Policy Communication

In a September 3 Reuters NEXT interview, Waller said inflation remains meaningfully above the Federal Open Market Committee’s 2 percent goal but that recent data show signs of improvement. He pointed to July PCE inflation of 0.2 percent month over month and core PCE inflation of 0.2 percent, while noting that three-month core inflation had declined to 3.05 percent through July from 4.76 percent in February. He said he would support holding the federal funds rate at its current setting if the August data due before the meeting show continued progress, but would consider a rate increase if that progress proves fleeting.

Waller’s comments came against a backdrop of solid activity rather than an economy already showing broad weakness. Real GDP grew at a 1.8 percent annual rate in the first half of 2026, real private domestic final purchases rose 3 percent, and job creation averaged 60,000 a month through July. The unemployment rate was 4.1 percent in July. Waller therefore described growth and employment as broadly satisfactory, leaving inflation as the main determinant of his next policy decision.

The speech also highlighted competing forces within the outlook. Waller said AI-related data-center investment and other high-tech spending were supporting business investment, while energy prices remained higher than at the beginning of 2026 and further tariff increases could create upside inflation risk. He also said tariff effects had largely passed through inflation and that wage growth adjusted for productivity remained consistent with inflation moving toward 2 percent. A pending change in the Commerce Department’s estimate of nonmarket services prices could lower reported 12-month PCE inflation by a few tenths of a percentage point.

The immediate market mechanism is the August inflation reading ahead of the September 15-16 FOMC meeting. A continued decline would reinforce a pause, while a hot reading could move Waller toward tighter policy; the speech itself does not identify a single-name equity beneficiary or loser, and no ticker-specific enrichment was provided. The open issue is whether the recent disinflation trend persists despite energy, tariff and AI-related price risks.