Yields mixed on peace deal hopes, Fed commentary. Policy-sensitive Treasury yields declined overnight but closed ~4bps higher after Fed Governor Waller spoke about rate hikes as the next potential Fed move. The 2-year yield closed at 4.12% (up 5 bps on the week), while the 10-year yield closed 1bp lower at 4.56% (down 3 bps on the week). Meanwhile, equities rallied on continued US-Iran peace deal optimism, with the S&P 500 and NASDAQ currently up 0.40%-0.60%.
Fed’s Waller in wait & see mode. Fed Governor Christopher Waller said today that he views the odds of a rate hike and rate cut as equally likely with elevated energy prices from the Iran war creating inflationary pressures. Waller clarified that he prefers the Fed to hold rates steady until the impact from the war is more clear, though he did not rule out a rate hike. Waller said, “Inflation is not headed in the right direction… I would support removing the ‘easing bias’ language in our policy statement to make it clear that a rate cut is no more likely in the future than a rate increase.” Futures markets now have a rate hike fully priced in by the end of the year.
Kevin Warsh sworn in as Fed Chair. Kevin Warsh was officially sworn in today in a White House ceremony as the 17th chair of the Fed. Kevin Warsh faced scrutiny during his nomination process as markets worried he would jeopardize the Fed’s independence, especially as the Fed has recently faced pressure from Trump to lower rates. During today’s ceremony, President Donald Trump said, “I want Kevin to be totally independent… Don’t look at me, don’t look at anybody, just do your own thing and do a great job.” Trump also added that Warsh will “safeguard the Fed’s integrity.”