Stocks Pop, Yields Cool After Fed's Waller Says He's Inclined To Leave Rates Unchanged If Inflation Softens

• The 12-month inflation rate came down to 3.4% in July 2026 from a year ago. 
• Waller's dovish stance contrasts with hawkish signals from Fed Chairman Kevin Warsh, though Waller stressed that a hotter-than-expected inflation report could still prompt him to vote for a rate hike.
• CME FedWatch Tool showed traders lowered the odds of a September rate increase to roughly 50%. 

Federal Reserve Governor Christopher Waller said on Thursday that he is inclined to advocate for leaving the central bank's target interest rate unchanged at its upcoming policy meeting, contingent on incoming inflation data showing continued progress toward the Fed's 2% target. 

Speaking at a Reuters NEXT Newsmaker event in Washington, Waller said his final vote at the September 15-16 Federal Open Market Committee (FOMC) meeting will depend heavily on price index releases due over the next two weeks. 

Waller noted that the federal funds rate, currently set between 3.50% and 3.75%, is only slightly restricting aggregate demand. However, he cautioned that the policy door remains open to further tightening if key inflation metrics reaccelerate as tensions in the Middle East continue to weigh on sentiment.

The SPDR S & P 500 ETF (SPY), Invesco QQQ (QQQ) and SPDR Dow Jones ETF (DIA) all gained about 1% on Thursday at the time of writing. The iShares 20+ Year Treasury ETF (TLT) rose 0.4%.  

Recent US Inflation Trends: CPI, PPI, And PCE

Waller's comments come at a critical juncture as policymakers evaluate conflicting economic data ahead of their mid-September gathering. The Fed's preferred gauge, the Personal Consumption Expenditures (PCE) price index, rose 3.7% year-over-year in July, while core PCE stood at 3.3%. 

Waller highlighted that the three-month annualized core PCE rate fell to 3.05% through July, down significantly from 4.76% in February, offering encouraging evidence of a trajectory toward price stability.

Meanwhile, Consumer Price Index (CPI) data show headline inflation at 3.36% annually in July, with core CPI moderating to 2.48% year over year. The August CPI report, scheduled for release next week, will serve as the final landmark inflation reading prior to the FOMC meeting on September 15-16.

Market Expectations And The CME FedWatch Tool

Waller's remarks provided immediate relief to Wall Street investors who had been bracing for a hawkish stance following Chairman Kevin Warsh's cautious tone at the Jackson Hole economic symposium late last month. Benchmark indexes advanced following the interview, as market expectations for monetary policy shifted quickly.

According to the CME FedWatch Tool, which estimates probabilities based on 30-day Federal Funds futures pricing, the likelihood of a 25-basis-point rate hike at the September meeting dropped to roughly 50%, down from nearly 60% earlier in the week. 

Traders are now pricing in even odds between an interest rate hold at 3.50%–3.75% and a quarter-point rate increase.

SPY, QQQ, DIA ETFs: Retail View 

Retail sentiment on Stocktwits was 'bearish' on the SPY and DIA and 'neutral' on the QQQ. 

SPY gained 12.4%, QQQ added 15.6%, and DIA rose 10.6% year-to-date.

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