The highlight of the economic calendar today 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 am encouraged by what we have learned in the past few weeks—something
appears to be giving, and it’s the pace of the economy”
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 several more months — I don’t know how long that might be — three months, four months, five months — that we feel confident that inflation is really down and on its way, you could then start lowering the policy rate just because inflation is lower.”
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
- 16:15: Fed’s Daly Speech
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 signals a market that is jittery that Waller will push back on expectations for rate cuts in March. That’s especially 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.
However it’s not one the Fed has hinted at and I don’t think it’s coming today. Instead, I wouldn’t be surprised if Waller follows Barkin in highlighting how a ‘toggle’ in rates below 5.50% would leave the Fed still in a restrictive place but without overly risking growth.
If he does talk more about cutting rates, the dollar strength and equity weakness today could quickly reverse.