Fed Governor Waller Won’t Rule Out a March Rate Cut

Rates sink following dovish Fed commentary. Yields rose overnight and were 2-3 bps above opening levels this morning until Fed Governor Christopher Wallersuggested that favorable economic data could allow for rate cuts in the first half of the year.The short end of the yield curve fell ~5 bps following Waller’s comments and closed nearly 8 bps below intraday highs. Ultimately, yields closed 1-5 bps lower across the curve. Meanwhile, equities sold-off despite rising hopes for early-year rate cuts, with the NASDAQ down 0.89%.

Fed’s Waller is optimistic about US inflation. After consumer and producer inflation were weaker than expected in December, Fed Governor Waller said, “If we continue getting numbers like this, it’s reasonable to think rate cuts could happen in the first half of the year.” He also labelled the prints as “very good” and described the data as a “disinflationary trend” after December marked the first month of a year-over-year CPI slowdown since July. Waller added that 3-4 rate cuts are possible in 2025, dependent on further economic data.

Treasury Secretary nominee Bessent supports government spending cutbacks, extended tax cuts. After outgoing Treasury Secretary Yellen argued yesterday that the US cannot extend Trump tax cuts due to mounting government debt, incoming Treasury Secretary Bessent said the opposite. During today’s confirmation hearing, Bessent called the tax cut extensions the “single most important economic issue of the day — this is pass/fail…” He added that the government needs to prioritize productive, pro-growth investment while cutting back on discretionary spending that “drives” inflation. While Bessent wishes to cut spending, he made clear that there will be no cutbacks for Social Security and Medicare, saying, “I want to emphasize that President Trump has said that Social Security and Medicare will not be touched.”