Other Fed officials chimed with Waller. New York Fed chief John Williams said long-term inflation expectations were anchored, reassuring and “remarkably stable”.
Chicago Fed President Austan Goolsbee was more colourful in insisting there were risks in keeping rates too high for too long – due to the lags in policy taking effect.
“Anybody who cooks a turkey knows that you got to pull it out of the oven before it’s to the point where you want it to be, because it’s going to have residual heat.”
Only Fed governor Michelle Bowman seemed to hold up the side of the hawks, saying she still expects one more rate rise.
Has there been a deliberate shift in guidance? We may have to wait for Powell for the casting vote on that when he speaks on Friday.
But for now, markets were electrified by Waller’s seeming turn and the prospect that their bullish take on stocks and bonds for 2024 – disinflation, rate cuts and a soft landing – looked to be on track.
Fed futures now have the first Fed rate cut of a quarter point fully priced for May and 110bps of rate cuts by year-end.
Two-year Treasury yields plunged more than 15 basis points to four-month lows of 4.66% on Wednesday, with 10-year yields hitting their lowest since mid-September – a startling drop of more than 75bps in little over a month.
The dollar index plunged to 3-month lows, only clawing some of that ground back on Wednesday.
China’s offshore yuan, for example, hit its strongest level against the U.S. currency since June.
Stocks were lifted too, although the reaction has been more muted than in the bond market so far and the S&P only eked out a small gain on Wednesday. Still, November’s 8.6% rise makes it the best month of a year that’s clocking year-to-date gains of almost 19% and stock futures were up smartly again ahead of Wednesday’s bell.
