Waller's comments boosted Wall Street indices, with the interest-rate-sensitive Nasdaq rising over 2%.
Friday was a day devoid of economic data and events relevant enough to have an impact on the performance of financial assets. However, Fed official Waller's remarks acted as a catalyst for the markets.
Waller is a Governing Board member, so he has a permanent vote. It was his first public statement since last November, and Waller is one of the Fed officials who belongs to the so-called "group of hawks," or those who favor higher interest rates.
For this reason, any changes to his speech have a greater impact on the markets.
Waller admitted from the start that the most appropriate rate increase for the February meeting would be 25 basis points, the smallest of the interest rate increases now being considered in the market, though he maintained that interest rates must remain high for a period of time, at least until the end of 2023.
But what he said afterward stoked the markets: namely, if inflation has already peaked, that would be fantastic news, and he would have no problem changing monetary policy. When one of the Federal Reserve's "hawks" says something unexpected like this, it can make investors think the Fed is getting close to the end of its cycle of rate hikes; this may explain Friday’s surge of optimism.
Wall Street indices rose in response to Waller's comments, with the most interest-rate sensitive Nasdaq leading the way, rising more than 2%. Market interest rates remained stable, and the US dollar weakened slightly, particularly the EUR/USD pair, which closed at the upper end of its recent trading range. For the rest of the week, all eyes will be on the Personal Consumption Expenditure data, the Fed's preferred measure of inflation, which will be released on Friday.
Sources: Bloomberg, Reuters