Waller’s first Jackson Hole speech—the key summary of it is essentially this line.
Waller clearly brought the “inflation priority” back to the top
He believes that if inflation still fails to return to 2% for a long time, the Fed still has “work to do,” and if necessary, it does not rule out further rate hikes. Right now, core PCE is still 3.3%, while the market-implied probability of a rate hike over the next month has already been pushed to about 46%. The 2-year Treasury yield has risen to 4.29%, hitting a one-month high.
Waller also wants the Fed to become “quieter.”
Reduce forward guidance and stop frequently hinting at the policy path to the market. He believes the market has become overly dependent on the dot plot and central bank statements, which ultimately creates a cycle of “the Fed looking at the market while the market guesses what the Fed will do.” Going forward, it’s more likely to let inflation, employment, financial conditions, and the bond market speak for themselves.
The direct impact on assets
The dollar and short-term bond yields are on the stronger side. Overvalued tech and BTC face short-term pressure, and gold will also be constrained by real interest rates.
In fact, the market has already been pricing in part of the expectation of looser policy ahead of the speech. Right before the remarks, BTC has once again moved back above $80,000, and gold is also holding above $4,600. Meanwhile, US stock funds saw a net outflow of $22.3 billion over the week, and the capital is clearly starting to take a defensive stance.
My assessment of this speech is that:
It’s not “rate hikes are definitely coming in September.” Instead, what the Fed has officially told the market is: stop guessing. I’m looking at the data—and if necessary, I really will take action.
In the short term, I’ll be more cautious. $BTC First, watch the $80,000 support. $XAUT For gold, pay attention to the direction of real interest rates. As for the real setup, however, it should be confirmed by subsequent inflation and employment data.