3 days ago
Dow Jones Surges as Waller Signals Data-Dependent Fed Stance
US stocks rose sharply after Federal Reserve Governor Christopher Waller discussed interest rates.
He said he could support keeping rates unchanged if inflation continues to improve.
He also said he could support a rate increase if inflation is hotter than expected.
This made investors feel that a rate hike was less certain.
The Dow Jones rose more than 600 points, and other major stock indexes also gained.
Bond yields and the US dollar fell, while gold prices moved higher.
Investors were waiting for new jobs and inflation reports to provide more clues.
Economists disagreed about how strong the upcoming jobs report would be.
The Dow Jones gained more than 600 points on Thursday, its best session since August 4.
The S&P 500 rose more than 1%, while the Nasdaq Composite advanced 1.4%.
Federal Reserve Governor Christopher Waller said his rate decision will depend heavily on August inflation data.
The CME FedWatch probability of a 25-basis-point rate hike on September 16 fell from 63% to 50%.
Investors also saw lower bond yields, a weaker dollar and higher gold prices, while oil remained near $96 a barrel.
- Who
- Federal Reserve Governor Christopher Waller, Wall Street investors and the Federal Open Market Committee.
- What
- US stocks rallied after Waller said future interest-rate decisions would depend heavily on incoming inflation data.
- Where
- Wall Street and related US financial markets.
- When
- Thursday, September 3; August PPI and CPI data are due September 10 and September 11, respectively, while the August jobs report was due later that day.
- Why
- Waller's comments reduced the perceived likelihood of an immediate rate hike while keeping a hike possible if inflation rises.
Rate Hold and Cut Case
Rate Hike Case
Inflation outlook
Rate Hold and Cut Case
Waller said signs of disinflation were emerging and that he could vote to leave rates unchanged if August inflation shows progress toward the Federal Reserve's 2% target.
Rate Hike Case
Waller said he would support a rate increase if inflation is hotter than expected, making policy restrictive enough to cool the economy.
Expected next policy move
Rate Hold and Cut Case
The reduced rate-hike probability and contrarian calls from brokerages such as Citi supported expectations that the next move could eventually be a cut.
Rate Hike Case
The CME FedWatch tool still showed a 50% probability of a 25-basis-point hike on September 16.
Jobs outlook
Rate Hold and Cut Case
The broader consensus expected 53,000 new jobs with unemployment steady at 4.1%, a relatively restrained labor-market reading.
Rate Hike Case
Citi expected only 20,000 new jobs and unemployment rising to 4.2%, while the article noted negative revisions to June and July employment figures.
Key facts
- Dow Jones move
- More than 600 points higher, its best day since August 4.
- S&P 500 move
- More than 1% higher.
- Nasdaq Composite move
- 1.4% higher.
- Rate-hike probability
- CME FedWatch's projected probability of a 25-basis-point September 16 hike fell from 63% to 50%.
- 10-year Treasury yield
- Briefly fell from a recent high of 4.82% to 4.73%, then recovered to 4.77%.
- Upcoming inflation data
- August PPI was scheduled for September 10 and August CPI for September 11.
- Jobs-report consensus
- Economists expected 53,000 new jobs and a 4.1% unemployment rate; Citi expected 20,000 jobs and a 4.2% unemployment rate.
Sources
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