Investing.com -- Fed Governor Christopher Waller said Thursday that if incoming data over the next two weeks continues to show disinflation, he would support keeping the federal funds rate at its current 3.50%-3.75% target at the September 15-16 FOMC meeting, per remarks delivered at a Reuters NEXT Newsmaker Interview in Washington.

Treasury yields dropped to session lows while S&P 500 futures moved higher following the remarks. Traders dialed back expectations for a September rate hike, leaving the odds near a 50-50 toss-up in Fed funds futures and swaps markets.

Waller’s comments represent a notably more data-conditional tone than the hawkish framing delivered by Fed Chair Kevin Warsh at Jackson Hole on August 28, where Warsh signaled higher rates may be needed if underlying inflation fails to clearly improve. That speech pushed market-implied odds of a September hike to roughly 60%-66% from around 35%. Waller, speaking to Reuters, emphasized that the speed of the disinflationary move since February was "encouraging," even as 12-month core PCE inflation remains at 3.3%, well above the FOMC’s 2% goal.

The governor did not rule out a hike. "If inflation comes in hot, I would consider a rate hike," Waller told the Reuters audience. "I judge that policy is currently only slightly restricting aggregate demand, and it may not take much acceleration in inflation to nudge me into supporting tighter policy." He added that his September vote will be "heavily influenced" by August CPI data, making that single print the pivot point for the entire rate debate.

Waller also flagged a pending Commerce Department methodology change for estimating financial-services fees, which he expects could lower 12-month PCE inflation by "a few tenths of a percentage point." He called it a "welcome measurement correction," and noted that nonmarket services prices, which are imputed rather than directly observed, accounted for roughly half of July’s core PCE increase, making underlying inflation look worse than he believes it actually is.

The market context around Waller’s remarks has shifted meaningfully in recent weeks. HSBC raised its two-year Treasury yield forecast to 4.20% for end-2026 (from 3.85%) and its 10-year yield forecast to 4.65% (from 4.30%), citing a more hawkish Fed outlook, according to an Investing.com report published Thursday. HSBC now sees a "nearly even likelihood" of a 25-basis-point hike in September, describing the FOMC debate as "on a fine edge." Goldman Sachs chief economist Jan Hatzius, however, continues to expect a hold. "A hike in September is possible if the August CPI and PPI come in firmer, but we continue to expect that core CPI and PCE inflation will print around 0.2% in August and that the FOMC will remain on hold," Hatzius said, as reported by Morningstar. An Investing.com analysis published Thursday noted that a September rate hike could amplify the seasonal "September Effect" for equities, potentially putting the S&P 500 at risk of a 5% near-term correction, even as Goldman Sachs maintains a year-end target of 8,000 for the index.

Two catalysts now stand between markets and the September 16 rate decision. August Nonfarm Payrolls are due Friday, September 4. Waller said he expects no major deviation from recent trends, but a shock result could shift his calculus. The more consequential release is August CPI, scheduled for Thursday, September 11, one week before the FOMC announcement. Waller explicitly identified that print as the decisive input for his vote: a reading that shows continued disinflation progress locks in his support for a hold, while a hot number could flip him toward a hike. With HSBC calling the outcome "nearly even" and Goldman’s base case resting on a benign 0.2% monthly core print, the August 11 CPI report will function as the market’s rate verdict before the Fed even convenes.