Waller reduces rate hike expectations - employment data to influence Fed's decision

The interest rate outlook became somewhat less hawkish after US Federal Reserve (Fed) Governor Christopher Waller stated that recent economic data show encouraging signs of slowing inflation, or disinflation. According to him, if future data confirm a further decline in price growth, he will support keeping the interest rate unchanged at the September 15-16 meeting.

Waller's remarks were followed by an equally cautious stance from New York Fed President John Williams. Williams favors a wait-and-see approach to monetary policy, evaluating new economic data as it comes in.

Following Waller's comments, financial markets lowered the probability of a 25-basis-point rate hike in September to around 50%, down from nearly 65% previously. According to Reuters, citing CME FedWatch data, the market was pricing in the possibilities of a rate hike and holding rates steady as almost equal.

Interest rate expectations have recently become one of the key drivers of the stock market. If investors become more convinced that the Fed will keep rates unchanged in September, pressure on tech and other rate-sensitive stocks could ease.

However, market sentiment still depends heavily on new economic data. Friday's jobs report could be the very factor that either reinforces or reverses the recent decline in rate-hike expectations.

Waller also noted that his position will ultimately depend on how inflation develops going forward. Accordingly, despite the reduced expectations of a rate hike, the Fed's decision at the September meeting remains an open question.