How right this moment’s speech from Waller may flip across the market

The spotlight of the financial calendar right this moment is an 11 am ET (1600 GMT) speech from Federal Reserve Governor Christopher Waller.

In November, he supercharged Fed rate-cut expectations when he said:

“I’m inspired by what we’ve discovered previously few weeks—one thing
seems to be giving, and it’s the tempo of the financial system”

He added that there are good arguments that if inflation continues falling for several more months that you could lower policy rate.

In inflation continues falling “for a number of extra months — I don’t know the way lengthy that is likely to be — three
months, 4 months, 5 months — that we really feel assured that inflation
is admittedly down and on its method, you would then begin decreasing the coverage
fee simply because inflation is decrease.”

The market clearly thinks that March is enough, with a 75% chance of a cut priced in, and one-and-a-half cuts priced in by May.

Waller has also positioned himself as a key message-sender ahead of FOMC meetings. The timing of today’s speech isn’t an accident as it comes just a few days before Friday’s blackout. That’s a good time to send markets a steer while leaving some room for a course correction if he misspeaks.

Critically, there isn’t much else on the Fed calendar this week.

• Tuesday, Jan 16
  • 11:00: Fed’s Waller Speech
• Wednesday, Jan 17
  • 09:00: Fed’s Bowman Speech
  • 09:00: Fed’s Barr Speech
  • 14:00: Fed’s Beige Book Report
  • 15:00: Fed’s Williams Speech
• Thursday, Jan 18
  • 07:30: Fed’s Bostic Speech
• Friday, Jan 19

How it could impact the market

The mood today in the market is hawkish, with yields up, stocks down and the dollar higher.

To me, that alerts a market that’s jittery that Waller will push again on expectations for fee cuts in March. That is particularly prescient after last week’s hotter US CPI.

The Fed may once again have decided to redouble its efforts to completely snuff out inflation rather than continuing to play with inflationary fire. To be fair, that’s a reasonable strategy.

Nonetheless it is not one the Fed has hinted at and I do not suppose it is coming right this moment. As a substitute, I would not be shocked if Waller follows Barkin in highlighting how a ‘toggle’ in charges beneath 5.50% would depart the Fed nonetheless in a restrictive place however with out overly risking development.

If he does speak extra about slicing charges, the greenback energy and fairness weak point right this moment may rapidly reverse.