Fed Governor Waller backs December rate hike; odds jump to 98%

What happened

Federal Reserve Governor Christopher Waller said at a conference in London on Tuesday that he would support raising interest rates by 25 basis points in December. "However, if inflation comes in substantially higher than I expect, more robust action by the FOMC may be called for," he added. Markets repriced sharply: LSEG data showed the probability of a December hike jumping to 98% from 84% before the comments. The dollar turned higher (DXY +0.1% to 101.703) and Treasury yields rose, with the 10-year ticking up ~2bp to 4.882% and the 2-year up 6.7bp to 4.613%, per Tradeweb.

Who’s affected

• Broad market (SPY/DIA/QQQ): a near-certain December hike tightens financial conditions; rate-sensitive growth stocks face the most pressure
• Treasuries: 10-year yield rose ~2bp to 4.882-4.885%, 2-year jumped 6.7bp to 4.613% after Waller's comments
• Dollar: DXY rose 0.1% to 101.703 after the comments
• Rate-sensitive equities (utilities, REITs, homebuilders, small caps): higher-for-longer repricing is a headwind

Sources

wsj.comwsj.com