Global equity markets advanced and sovereign bond yields retreated on Thursday after a Federal Reserve governor argued that US interest rates should remain unchanged so long as inflation continues to ease.
“Give disinflation a chance,” said Christopher Waller, a member of the Fed’s board of governors, paraphrasing the John Lennon classic. Waller cited “slow but steady progress” towards the central bank’s 2% inflation target and argued it was worth waiting one more meeting before making any rate decision. “What is the cost of waiting one meeting? Raising 25 basis points right now is not going to bring the consumer price index down to 2%,” he told Reuters.
His comments pushed the market-implied probability of a rate increase at the 15–16 September Federal Open Market Committee meeting to around 50%, reversing a sharp hawkish repricing that had followed a notably more restrictive speech by Fed Chair Kevin Warsh at the annual Jackson Hole central banking symposium. Warsh had warned that underlying inflation remains “significantly above” the Fed’s objective and that the institution has “no tolerance for persistently elevated inflation”, leaving open the possibility of a further rate increase if incoming data do not improve.
Divergence within the Fed over the path of monetary policy
Waller’s remarks, alongside the more cautious reading offered by New York Fed President John Williams, underscore the deep division currently running through the US central bank over the appropriate policy response to inflation. Both Waller and Williams suggested that the inflationary impact of tariffs imposed by the US administration and the energy-price pressures stemming from ongoing military conflicts are transitory and beginning to fade. Williams, however, struck a more hesitant tone on the policy outlook: “there are no clear signals at this point that current policy will bring inflation back to target,” he told reporters this week, adding that the Fed “has to wait and see” how forthcoming data develop before taking a decision.
The next meeting of the Federal Open Market Committee — the Fed body responsible for setting the US benchmark interest rate — is scheduled for 15 and 16 September. In the weeks leading up to that meeting, markets will track closely the inflation releases due to be published, which are widely expected to be decisive for the central bank’s final call. That decision stands out as notable: for the first time in several years, investors are genuinely pricing in the possibility that the Fed’s next move could be a rate increase rather than a cut.
Source: Mercado / Original article: https://mercado.co.ao/mercados-sobem-e-juros-da-divida-caem-apos-governador-da-fed-defender-manutencao-das-taxas-de-juro/
