Fed Chair Kevin Warsh's approach to communication has left markets confused after Governor Christopher Waller said a 50-basis-point hike next month should be considered if October core CPI rose at least 0.3%; it was reported at 0.3%. Bond yields rose sharply, and markets shifted to pricing in 75 basis points of hikes over the remainder of the cycle.
Waller said a 50-basis-point rate hike next month should be on the table if October's monthly core CPI increase was 0.3% or more. The increase was confirmed at 0.3%, and Waller's remarks triggered a sharp rise in U.S. bond yields.
Waller had previously dissented in favor of rate cuts and said in March that he would again advocate for cuts if the labor market remained weak. Other recent signals from Fed officials, including hawks such as Cleveland Fed President Beth Hammack, had pointed to gradual tightening rather than a large hike immediately after a pause.
Markets are now expecting 75 basis points of hikes over the remainder of the cycle, compared with less than 50 basis points before Waller's remarks. The article notes that oil prices had fallen nearly 20% since the Fed held rates on October 28, one-year inflation swaps had dropped below 2%, and the Nasdaq was down 6%.
