Fed's Waller is speaking and his comments are more hawkish
- Do not expect to support a change in the policy rate in the near term; outcome will depend heavily on the length of the Iran conflict
- Labor market is in balance and no longer the chief concern in determining the path of policy
- Should remove easing bias from the statement, though not advocating a hike at this point
- Concerned about rising expectations as Fed’s inflation miss enters sixth year
- If expectations start to become unanchored, would not hesitate to support a rate hike
- Inflation at risk of becoming more persistent, with price pressures broadening
- No sign AI investment boom will slow
- So far high energy costs have not crimped consumer spending
Recall, Waller voted for a rate cut at the January 2026 FOMC meeting, dissenting in favor of a 25 basis point reduction while the majority chose to leave rates unchanged. At the most recent FOMC meeting, three Fed officials voted in favor of shifting the policy bias to neutral. Waller was likely not among those three dissenters, although this week’s Fed minutes revealed that many participants favored moving toward a neutral bias, suggesting broader support within the Committee for that stance. Based on his comments today, Waller now appears to be firmly in that camp, reflecting a notable shift away from his earlier dovish lean and toward greater concern about inflation risks.
Yields have moved higher with the 2 year up to 4.118% up 3.4 basis points. The 10 year is still lower on the day by -1.4 basis points but off the low.. The yield is at 4.57%. In addition to the Waller comments, the Michigan inflation expectations moved up to 4.8% and the 5 year to 3.9%. The Fed does not want to see inflation expectations moving higher.
The USD has likewise moved back higher. The USDJPY bounced off the 100 hour MA at 158.99 although it still remains in a very narrow trading range. The low is at 158.92. The high is 159.17. That is very narrow. Traders are looking for a break, but the buyers are more in control above the 100 hour MA.
The markets are pricing in a 25 basis point hike now by the end of the year. Earlier this week it was 50-60%.
US stocks are still higher but coming off the highs for the day. Dow is up 0.56%. The S&P is up 0.37% and the Nasdaq is up 0.24%. Crude oil is up $1.39 or 1.46% at $97.80 as news from Iran is good and then not so good. The markets are more cautious on a deal.
