Waller's Remarks Suggest Fed May Raise Rates, Reversing Previous Logic

Federal Reserve Chairman Waller's remarks have eased concerns about his strategy to combat inflation, but they also foreshadow upcoming challenges. Waller pointed out that if the Fed raises rates, it could anger the White House just weeks before the midterm elections; conversely, if it remains inactive, doubts may resurface. Two points mentioned in Waller's speech suggest that the Fed may raise rates next month: first, the current financial conditions cannot be deemed restrictive; second, the summer inflation data has not convinced him that the underlying trend is improving. The Fed's previous default choice was to remain inactive unless the data supported action. Former Fed Vice Chairman Cohen stated that Waller's remarks have altered the original assumptions, and future decisions will depend on developments before the September meeting, particularly the August CPI data to be released on September 11. If the data indicates no need for action, the Fed should not raise rates; if the data is strong, it may weaken the argument for inflation to return to the Fed's 2% target.