U.S. stocks climb as Waller eases rate fears

Federal Reserve Governor Christopher Waller said he would be "inclined to support" holding the federal funds rate at its current setting if upcoming inflation data continues to show progress toward lower price pressures. His remarks emphasized recent signs of disinflation and indicated that, in the absence of negative surprises in the data, keeping policy steady at the next decision would be his preferred stance.

Waller also noted that inflation remains meaningfully above the central bank’s 2% target but pointed to improving trends as a reason to wait for further information before adjusting rates. His position contrasted with prior market concerns that persistent inflation and higher energy costs might soon trigger another rate increase.

Interest rate futures markets shifted notably after Waller’s comments. Bets among fed funds futures traders that the central bank would raise rates in the coming weeks fell to 50.4% from 63.2%, based on the CME FedWatch tool. This adjustment signaled that investors now see roughly even odds of an additional near-term hike, down from a clear lean toward tightening.

The recalibration in expectations helped ease immediate concerns about borrowing costs and supported a move away from the more hawkish outlook that had built up amid earlier inflation and energy price worries.

The shift in rate expectations fed directly into the U.S. Treasury market. The benchmark 10-year Treasury yield, which had recently touched its highest level since November 2023, declined to about 4.75–4.77% after Waller’s remarks. The pullback in yields reflected reduced anxiety about imminent policy tightening.

A stronger Japanese yen and continued focus on upcoming inflation data also contributed to the move lower in yields. Even as investors remained attentive to inflation risks, the combination of Waller’s comments and the currency moves relieved some upward pressure that had built in recent sessions.

Lower bond yields and softer rate-hike odds provided a boost to U.S. equities. The S&P 500 (SPX) climbed about 1%, while the Nasdaq Composite added around 1.3%. The Dow Jones Industrial Average (DJIA) advanced roughly 635 points, or about 1.2%, reflecting broad-based gains across major sectors.

The equity rally followed a period of pressure tied to rising yields and concerns that higher-for-longer interest rates could weigh on valuations. With yields stepping back and policy risks appearing less immediate, investors moved back into risk assets, helping major indexes post back-to-back gains.

Oil prices stayed high even as financial markets reacted positively to Waller’s remarks. West Texas Intermediate crude futures rose 0.32% to settle at $91.30 per barrel, while Brent crude futures edged down 0.12% to $95.52 per barrel. Elevated crude prices have recently contributed to worries that energy costs could reaccelerate inflation.

Despite these concerns, Waller indicated that higher energy prices had not yet had a substantial impact on other parts of the economy and that tariff effects appeared muted. For now, markets appear focused on the near-term path of inflation data and how it will shape the next interest rate decision.