Fed Governor Waller sees December hike likely, opens door to possible half-point increase
Fed Governor Christopher Waller's comments suggest a strong likelihood of a quarter-point rate hike in December, with the potential for a half-point increase depending on upcoming inflation data. This stance reflects a commitment to tackling inflation despite the Fed's pause in October, indicating a more hawkish outlook from Waller that could signal broader support within the central bank for tighter monetary policy. This commentary is particularly relevant as it underscores the Fed's focus on economic indicators as they navigate inflationary pressures, impacting market expectations around the USD's strength.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). CNBC's coverage reflects a broader expectation of Fed tightening, aligning with the more hawkish views of some market participants.
How firms align
JPMorgan supports the tightening narrative with a target of 1.10 for March, indicating alignment with Waller's perspective. Conversely, BofA holds a contrary view at 1.04, suggesting skepticism regarding the Fed's tightening trajectory compared to the prevailing sentiment driven by Waller's statements.
What the data shows
Recent analysis points towards a consensus that further rate hikes could significantly impact the dollar; however, BofA's cautious stance suggests market fragmentation. For in-depth analysis, see our related research at /research/december-rate-hike.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Waller's comments indicate a likelihood of December rate hike at 5.25-5.50%.
- 02Traders should monitor inflation data closely ahead of December's rate decision.
- 03Risk lies in weaker inflation that could deter a significant rate increase.
- 04Expect sharp market movements if inflation data surprises early.
Market implications
Next week’s inflation data will be crucial; a print above expectations could push the USD higher, particularly targeting resistance around 1.08 in EUR/USD. Watch positioning ahead of the inflation release for potential volatility.
Risks to this view
A reversal of this bullish USD view could occur if upcoming inflation data points to a slowdown or if economic indicators suggest a recession, compelling the Fed to suspend rate hikes.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.72
Sources & References
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