Waller’s Comments Fuel Bets on Early 2024 Rate Cuts

Rates plummet on dovish commentary from Waller. Swap rates and Treasury yields bull steepened after the Fed’s Waller offered optimism for early 2024 rate cuts, which sent short-term yields as many as 14bps lower. In his speech, Waller stated that if inflation declines “for several more months…you could then start lowering the policy rate just because inflation is lower.” Fed Funds futures shifted dramatically after the commentary; there is now a 50/50 probability of one or two cuts by the end of the June FOMC meeting. Equities immediately jumped to intraday highs on the sentiment, though they closed roughly flat on the day.

US consumer confidence rises for first time in 4-months. Optimistic views of short-term income and hiring prospects drove consumer confidence to a 102 level in November, above forecasts. A gradual inflation slowdown coupled with a resilient labor market has allowed real wages to rise, putting more spending money in consumer’s pockets. Consumer buying plans also strengthened, with the share of consumers expecting to buy a car, home or major appliance all advancing vs. October.

USD continues to freefall on Fed pivot bets. The Bloomberg Dollar Spot Index dropped 0.4% today, a continuation of the month’s price action. The recent expectation shift toward an imminent Fed pivot has seen the USD fall to multi-month lows, as the Bloomberg Dollar Spot Index is on pace for the worst month in a year. If history holds, the decline may widen; over the past decade, the Bloomberg gauge has lost an average of 0.56% in December.