Fed's Waller Pushed Rate-Hike Hopes Lower After Stating The Obvious

A top Federal Reserve official said he would be “inclined” to keep interest rates on hold, highlighting divisions among the US central bank’s governors as they prepare for a crucial vote this month.

Outspoken Fed Governor Chris Waller clarified this morning what many knew... that he would support holding rates steady at the central bank's meeting in two weeks if August inflation data continue the recent progress seen in June and July, but that he could favor a rate increase if that progress reverses.

Recent data have shown signs of improvement on inflation, and "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 in remarks during a Reuters virtual event.

Additionally, he offered some optimism that price pressures were showing signs of improvement.

“While inflation remains meaningfully above the Federal Open Market Committee’s 2% goal, recent data suggest we are finally seeing some signs of disinflation,” he said.

The remarks marked a slight shift in tone from July, when Waller said the Fed was at "a crossroads" and, sounding less patient, said the central bank would need to consider tightening if evidence materialized of firmer inflation

And that slight shift pushed rate-hike odds for September back to a coin-flip...

Market bets on a rate rise moved dramatically after a hawkish speech at Jackson Hole by Fed chair Kevin Warsh last week.

Warsh said the Fed had “work to do” unless there was swift progress in bringing prices under control.

Three of the 12 voters on the FOMC backed a quarter-point rate rise at the central bank’s last meeting in July.

Interestingly, Waller said by communicating his outlook, businesses and households are offered a clearer picture of where policy may be headed. He also said there is a role for forward guidance.

“I agree with Chairman Warsh that forward guidance isn’t appropriate now or in many other situations,” Waller said.

“But when it is truly needed, I believe it should be used.”

Waller's remarks also pushed stocks up modestly and yields down more notably (especially at the short-end)...

Gold and Bitcoin also gained.

So, everything hings of August's inflation data (CPI next Friday).