Fed Governor Concedes Next Rate Move Is a Coin Flip as Inflation Stays Well Above Target

Federal Reserve Governor Christopher Waller told Reuters on September 3rd that inflation “remains meaningfully above” the Federal Open Market Committee’s 2 percent goal, even as he pointed to what he called recent signs of disinflation. The remarks, delivered at a Reuters NEXT Newsmaker Interview in Washington, D.C., come less than two weeks before the FOMC’s September 15th-16th meeting, where Waller acknowledged policymakers could just as easily hold rates steady or raise them if inflation data “comes in hot.” The admission that the decision could go either way, less than two weeks out, illustrates how much of current Fed policy is being made on the fly rather than guided by any fixed rule. Gold traded at an intraday high of $4,390 per ounce on Wednesday, as investors continue to weigh the odds against official reassurances.

The underlying numbers give little support to the disinflation narrative Waller described. Headline PCE (Personal Consumption Expenditures) inflation is running at 3.7 percent over the past 12 months, with core PCE, which excludes food and energy, at 3.3 percent. Both figures sit nearly double the Fed’s stated target. Waller dismissed these 12-month readings as “not the best guide” to current conditions, instead pointing to three-month annualized core inflation of 3.05 percent through July, down from 4.76 percent in February. He described the drop as “considerable improvement,” though the figure remains well above target by any measure.

Notably, Waller disclosed that the Commerce Department is preparing a methodology change to how it calculates “nonmarket” fees paid to stock market traders, a change he expects will shave a few tenths of a percentage point off reported 12-month PCE inflation. Whatever the technical justification, the timing invites questions about whether such adjustments reflect genuine price relief for households or simply a more favorable set of optics heading into a contentious policy meeting.

On the labor side, Waller cited the unemployment rate falling to 4.1 percent in July as “historically low,” while job creation has averaged just 60,000 per month through July, a pace he said is only “close to and probably a bit above” what is needed given slower labor force growth tied to reduced immigration. Real GDP grew 1.8 percent in the first half of 2026, with Waller crediting AI-related business investment as a major driver, even as he brushed aside concerns that such narrow, capital-intensive growth might be masking broader softness in the economy. He also attributed weak July retail sales to Amazon’s Prime Day shifting into June, an explanation that, whether accurate or not, adds another asterisk to an already asterisk-laden data picture.

Waller compared his approach to monetary policy to a baseball umpire’s strike zone, admitting his reaction function is imperfect but arguing that perfection is not the standard. He also referenced Chairman Warsh in agreeing that forward guidance is not appropriate in current conditions, a comment that hints at continued friction over how the Fed communicates its intentions. With inflation still running well above target, labor markets cooling, and the Fed itself uncertain which way it will move next, markets appear to be drawing their own conclusions, with gold’s persistence near record highs suggesting many investors are not waiting for the Fed to sort it out.