Just finished reading the briefing on remarks by Federal Reserve Chair Waller at the Jackson Hole symposium, and the market reaction was quite interesting—short-term Treasuries fell (yields rose), while long-term Treasuries climbed (yields fell). This chaotic mix of a “bear steepening” and a “bull flattening” suggests traders are in an intense tug-of-war.
Waller’s stance is very clear: inflation is still too high, the Fed’s credibility has been damaged, and action is required. He even described the 2% inflation target as “resolute,” with not a hint of flexibility. But the problem is that he emphasized there is “work to be done” while speaking ambiguously about whether there will be rate hikes this year. This combination of a hawkish posture plus an unclear path leaves long-term bond investors uneasy, demanding a higher term premium, while short-term trading is directly priced around expected rate hikes.
Let’s recap the backdrop: since the post-pandemic recovery began in 2021, U.S. inflation has remained persistently above 2%. And since Waller took office in June, the market has been only half-convinced of his determination. After he kept rates on hold in July, long-end yields already rose significantly. This speech effectively validated market concerns—that inflation persistence is more stubborn than people expected.
That said, I noticed a detail: he warned that “inflation has not meaningfully slowed,” yet at the same time stressed that they must “make policymakers believe” the downward trend. That may hint at disagreement within the Fed over how to interpret the data. In the short run, before the September rate decision, another inflation report is due—that will be the real “judgment day.”
For ordinary investors, the current volatility in the U.S. Treasury market is not just about interest rates; it’s also a battle of credit and patience. Waller is trying to tighten expectations with words, but the market needs to see concrete action. Until things settle, cash and short-duration assets may be steadier choices than taking risky bets on direction.
Waller’s stance is very clear: inflation is still too high, the Fed’s credibility has been damaged, and action is required. He even described the 2% inflation target as “resolute,” with not a hint of flexibility. But the problem is that he emphasized there is “work to be done” while speaking ambiguously about whether there will be rate hikes this year. This combination of a hawkish posture plus an unclear path leaves long-term bond investors uneasy, demanding a higher term premium, while short-term trading is directly priced around expected rate hikes.
Let’s recap the backdrop: since the post-pandemic recovery began in 2021, U.S. inflation has remained persistently above 2%. And since Waller took office in June, the market has been only half-convinced of his determination. After he kept rates on hold in July, long-end yields already rose significantly. This speech effectively validated market concerns—that inflation persistence is more stubborn than people expected.
That said, I noticed a detail: he warned that “inflation has not meaningfully slowed,” yet at the same time stressed that they must “make policymakers believe” the downward trend. That may hint at disagreement within the Fed over how to interpret the data. In the short run, before the September rate decision, another inflation report is due—that will be the real “judgment day.”
For ordinary investors, the current volatility in the U.S. Treasury market is not just about interest rates; it’s also a battle of credit and patience. Waller is trying to tighten expectations with words, but the market needs to see concrete action. Until things settle, cash and short-duration assets may be steadier choices than taking risky bets on direction.