New Federal Reserve News Agency: Waller's "tough talk" can't beat the data; two inflation reports may determine the fate of the September rate hike

The upcoming release of two inflation reports will serve as a real litmus test for Federal Reserve Chairman Waller’s credibility.

According to the latest report by The Wall Street Journal, Nick Timiraos, an economic reporter known as the "New Fed Whisperer," believes that Waller has consistently made fighting inflation the core policy theme of his Fed tenure. However, a vague and ambiguous press conference following last month’s FOMC meeting prompted the market to develop significant doubts as to whether he is truly willing to follow through on his tough rhetoric with action.

The July Consumer Price Index (CPI) and the Fed’s preferred inflation gauge, the core PCE, both of which will be released over the coming month, will directly determine whether Fed officials choose to hike rates at the September meeting or continue to hold steady.

If the data is hot, Waller will face a dilemma: he must either prove his resolve with another rate hike, or maintain rates despite facing greater internal dissent—making the credibility cracks left by the July meeting even harder to repair. If the data is moderate, it would offer him some breathing room, allowing him to proactively outline his policy thinking at this month’s Jackson Hole symposium, rather than being forced to respond to market pressure.

Data Threshold: 0.2% as the Watershed

Economists expect the month-on-month increase in core CPI for July to be 0.2%. Timiraos notes that a figure at or below this level signals inflation is moving in line with the Fed’s 2% target; any reading above that would be a clear sign of policy pressure.

The CPI print will further flow into the Fed’s more closely watched inflation metric, which will be released later this month. Notably, the core measure in the Fed’s preferred inflation index already rose to 3.3% in June, up significantly from 2.8% a year ago.

Nick Timiraos highlights that the current focus on the data stems from the fact that several officials’ previous forecasts have proven to be off-target. They had anticipated that tariff shocks would be one-off and that energy prices would recede with declines in oil; inflation, they argued, would revert to target without additional policy tightening. Yet these shocks have persisted, and have been compounded by a surge in prices for technology hardware and software driven by the AI investment boom—making officials’ forecasts increasingly hard to justify.

Press Conference Missteps Erode Market Confidence

Nick Timiraos believes that following July’s FOMC meeting, Waller’s performance greatly disappointed the market. When asked whether he would respond to sticky inflation with further rate hikes, his reply was evasive and circuitous—he suggested that higher bond yields were already substituting some of monetary policy’s tightening effects, and vaguely hinted at potentially redefining the Fed’s inflation target.

The market’s reaction was unusual: during Waller’s remarks, yields on 30-year US Treasuries climbed and failed to come down thereafter. BNP Paribas Chief US Economist James Egelhof noted that such a move is atypical before and after Fed meetings, indicating that "there may be a more fundamental shift underway in how the market perceives the Fed under Waller’s leadership."

Former Pimco Chief Economist Paul McCulley was more blunt, stating that Waller’s tendency to stick to macro principles at the expense of specifics actually reduces his policy flexibility. "He talks so tough, but in reality, he has boxed himself in operationally," McCulley said.

Internal Dissent Surfaces, More Dissenting Votes Expected

After the meeting, 10 of the 19 participating officials—including half of the 12 voting members—spoke out in the following days to elaborate on policy reasoning that Waller failed to clearly convey in the press conference.

Currently, at least six voting members have publicly stated they could support an eventual rate hike if inflation fails to improve; three of them already voted in favor of an immediate rate hike at the July meeting.

Nick Timiraos reports that people familiar with Waller acknowledge that the communication confusion from July’s press conference needs to be addressed, and that the Jackson Hole symposium could serve as an appropriate venue. However, some believe the market reaction has been overstated—former Fed vice chair Donald Kohn pointed out that market-based inflation expectations have hardly budged: "The market reaction isn’t as bleak as some commentators say. But you don’t want to go into a press conference and have that outcome—long rates up, short rates down."

Collision of Communication Philosophy and Real-World Pressures

From the start of his term, Waller sought to change the Fed’s communication style. He believed that pre-committing to the conditions and factors that would trigger policy action would only tie the central bank’s hands and impede a valuable signal—the market’s own assessment of the economic outlook. In his view, reducing forward guidance enables a purer reading of market signals.

However, Kohn raised concerns: "If you don’t articulate your framework for thinking, how do you even recognize when your judgment fails to be validated?"

As for the calendar, if the September meeting passes without a hike, the next will be just days before the midterm elections—when officials may be even more reluctant to raise rates for the first time in an election-sensitive period. This means that if the window is missed in September, a decision could be delayed to December, at which point it would be ever harder to justify—the inflation projections would have become difficult even for Waller’s own colleagues to defend.