Waller Leans Toward Fed Hold as Rate-Hike Odds Cool

Federal Reserve Governor Christopher Waller said Thursday he is leaning toward holding interest rates steady at the central bank’s September meeting, provided upcoming inflation data keep improving. The signal broke a hawkish run that had markets pricing a roughly 70% chance of a hike just days earlier, and it helped bitcoin claw back above $80,000 ahead of Friday’s US jobs report.

Waller’s remarks, made in a Reuters interview, directly countered the tone Chairman Kevin Warsh struck at Jackson Hole, where he said recent softer inflation readings did not tell him underlying trends had “meaningfully improved.” The split matters for crypto because September’s meeting, scheduled for Sept. 15-16, has become the market’s single biggest macro variable after a summer in which rate expectations repeatedly moved bitcoin.

What Waller said

Waller conceded that inflation remains “meaningfully above” the Fed’s 2% target — headline inflation was 3.7% and core 3.3% in July — but argued the underlying trend is better than those annual numbers suggest. He pointed to the three-month annualized rate of the Fed’s preferred inflation gauge, which he said has fallen from 4.76% in February to 3.05%.

“If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting,” Waller said.

He added a caveat: “It may not take much acceleration in inflation to nudge me into supporting tighter policy.” The only major inflation reports left before the meeting are next week’s consumer and producer price indexes. The Fed has held its target range at 3.50%-3.75% since Warsh took office in May.

Rate markets repriced quickly

The reaction was immediate. According to the CME FedWatch tool, the probability of a September hike crossed back below 50% after sitting near 70% earlier in the week, as measured by options on fed funds futures.

Treasury markets were already doing some of the work: the 10-year yield pulled back under 4.80% after testing that level, which SpotGamma, an options analytics firm, described as a crucial ceiling for risk assets. The firm noted the labor data entering Friday already looked soft — Wednesday’s ADP report showed 38,000 private jobs added versus 48,000 expected, the weakest pace since January, while JOLTS data showed hiring falling from 5.33 million to 5.05 million openings filled. The Bureau of Labor Statistics’ preliminary benchmark revision also indicated payroll employment through March will be revised down by 79,000.

Bitcoin reclaimed $80,000 — again

Bitcoin spent the first days of September below $78,000 after opening the month on a downbeat note. On Thursday it clawed back above $80,000, with 24/7 Wall St attributing the move to forced buybacks from short sellers and easing Iran tensions, on top of the drop in hike odds. The reclaim is a test rather than a breakout: the same combination lifted price above $80,000 in late August, and the move failed within three days.

Prediction markets reflected the tighter range: Polymarket contracts put the most likely outcome for bitcoin on Sept. 4 between $80,000 and $82,000, and Robinhood’s hourly contracts implied trading near $81,000 in the early hours of Friday.

The jobs report is the next test

Friday’s employment report at 8:30 a.m. ET (12:30 UTC) is the pivot. The consensus expects August nonfarm payrolls of about 45,000, according to Trading Economics, after July printed a decline of 23,000. A soft print would reinforce Waller’s hold bias and push hike odds lower; a hot one would revive them.

SpotGamma framed the asymmetry bluntly: options markets are pricing a meaningful but contained move, while the bond market looks considerably more nervous than equity volatility suggests. A payroll report that genuinely moves September Fed expectations, it argues, could produce a larger realized move than options imply.

What this does NOT tell you

Rate odds are a snapshot, not a forecast — SpotGamma itself calls them “fickle numbers that shift with the wind.” The same $80,000 reclaim failed on Aug. 28, and Thursday’s version had a large short-covering component that can reverse as quickly as it began. Waller’s hold bias is conditional on CPI and PPI next week behaving; one hot inflation print reopens the hike case before the Sept. 15-16 decision.

For crypto specifically, the mechanism runs through the dollar and real yields: tighter policy strengthens both, which historically pressures bitcoin and other risk assets. That relationship cuts both ways. The week ahead, not Thursday’s speech, determines whether September’s rate debate ends in a hike, a hold, or a coin flip that keeps volatility elevated through the FOMC.