Federal Reserve Governor Christopher Waller indicated on Thursday that he is inclined to keep the benchmark interest rate unchanged at the upcoming September policy meeting, provided that incoming inflation data does not deliver any surprises.

Waller expressed confidence in the current trajectory of inflation, stating that the price pressures stemming from tariffs are likely to remain contained and that elevated energy costs have not inflicted significant collateral damage on the broader economy. While he conceded that inflation remains "considerably above" the Fed's 2% target, he pointed to recent trends as evidence that "we are finally beginning to see some signs of disinflation."

"If the data scheduled for release over the next two weeks continues along this path, I would be inclined to support holding the federal funds rate target at its current level," Waller stated during an interview with Reuters. He playfully adapted a famous John Lennon lyric, saying, "Give disinflation a chance—we can wait one meeting. What does waiting one meeting cost? A single 25-basis-point hike now wouldn't bring CPI back to 2% anyway."

The remarks triggered a sharp repricing in futures markets, with the probability of a rate increase at the September 15-16 meeting tumbling to just 48.4%, according to the CME Group's FedWatch tool—a drop of roughly 15 percentage points from Wednesday's levels.

However, Waller also attached a caveat, stressing that he could alter his stance should new signals emerge before the meeting convenes. "I judge that the current policy stance is only mildly restraining aggregate demand. Inflation would not need to rebound dramatically to push me toward supporting tighter policy," he explained. "If there is evidence that progress toward the 2% inflation goal reversed in August, a modest adjustment to the policy stance would help ensure that the disinflationary trend gets back on track."

In the run-up to the September meeting, the Fed will only have access to two key inflation reports from the Bureau of Labor Statistics: next week's Consumer Price Index and Producer Price Index. These releases will heavily influence the Commerce Department's Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge.

Waller's comments stand in contrast to remarks made by Fed Chair Kevin Warsh less than a week earlier at the annual Jackson Hole symposium in Wyoming. Warsh had argued that recent monthly declines in inflation "do not represent a substantive improvement in the underlying inflation trend," adding that if price pressures fail to ease, "we still have work to do." Although those remarks were largely consistent with the Chair's previous positions on inflation, markets interpreted them as hawkish and quickly priced in a greater likelihood of a September hike.

With headline inflation at 3.7% and core inflation at 3.3% in July, Waller contended that the underlying trend is actually "better than what the core data suggests," asserting that annual inflation figures "are not the best reference point for judging the current level of inflation." He noted that the three-month annualized rate of inflation, as measured by the Fed's preferred PCE gauge, has cooled from 4.76% in February to 3.05% now. "That's a fairly substantial improvement, and the pace of deceleration is encouraging," he said.

Waller also flagged that non-market services prices, which are partly estimated rather than directly measured, could be skewing inflation readings higher. Additionally, he noted that the Bureau of Economic Analysis is set to revise its methodology for calculating the PCE Price Index, which will likely result in downward revisions to the inflation figures published earlier this year.