Waller Shifts Interest Rate Forecast... New York Stocks Rise More Than 1%, Treasury Yields Fall

[Financial News New York = Correspondent Lee Byeong-cheol]The New York stock market rose across the board following remarks by Federal Reserve System (Fed) Governor Christopher J. Waller that interest rates would be frozen in September. U.S. Treasury yields, which had recently surged due to soaring international oil prices and inflation concerns, also fell. The market's expectation of a September rate hike dropped from the 60% range to the 50% level in just one day.
On the 3rd (local time), the Standard & Poor's 500 Index (S&P 500 Index) closed at 7,747.71 on the New York Stock Exchange (NYSE), up 1.06% from the previous close. The NASDAQ Composite rose 1.40% to 26,584.06. The Dow Jones Industrial Average (DJIA) closed at 53,686.11, up 624.16 points (1.18%). This marked the largest single-day gain for the DJIA since the 4th of last month. It was Christopher J. Waller's remarks that drove the market up on this day.
In an interview with Reuters on the same day, Christopher J. Waller stated that if there is no unexpected rise in upcoming inflation figures, he would be highly likely to support maintaining the benchmark interest rate at its current level at the Federal Open Market Committee (FOMC) meeting on the 15th and 16th.
He acknowledged that U.S. inflation remains significantly above the Fed's target of 2%. However, noting signs of disinflation in recent indicators, he said he would support keeping interest rates unchanged if this trend continues in the data released over the next two weeks.
As Christopher J. Waller's remarks came out, the financial market's forecast for a September interest rate hike also quickly retreated.
According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the probability of a September rate hike reflected in the federal funds rate futures market fell from 63.2% the previous day to 50.4% today. The market outlook, which had been leaning toward a hike just a day ago, has effectively shifted to a 50/50 split.
The U.S. Treasury bond market also reacted immediately.
The benchmark 10-year U.S. Treasury yield fell to 4.77% on the day. The previous day, it had surged to its highest level since November 2023. The 2-year Treasury yield, which is sensitive to short-term monetary policy, also dropped to 4.322%.
Recently, U.S. Treasury yields have risen sharply as inflation concerns intensified again due to rising international oil prices caused by the war with Iran. This is due to fears that the Federal Reserve System (Fed) may proceed with further interest rate hikes if the increase in oil prices spills over into consumer prices.
International oil prices remained high on this day as well. West Texas Intermediate crude oil (WTI) closed at $91.30 per barrel, up 0.32% from the previous session. Brent Crude Oil fell 0.12% but finished trading at $95.52 per barrel, continuing to stay close to the $100 mark.
Most sectors in the stock market rose. Eight out of the 11 S&P 500 sectors increased, with the consumer discretionary sector showing the strongest performance, rising by approximately 1.6%.
Technology stocks were also strong. In particular, Snowflake Inc. saw its stock price surge by more than 16% after reporting better-than-expected earnings and a strong outlook. The company explained that the increased adoption of artificial intelligence (AI) products is driving the earnings improvement.
On the other hand, Broadcom Inc. fell about 3% following its recent quarterly earnings announcement. Investor sentiment was weighed on by fourth-quarter revenue forecasts falling short of market expectations.
Market attention is now turning to the U.S. employment report to be released on the 4th. If the labor market is stronger than expected, the outlook for a September rate hike could rise again, along with concerns that inflationary pressures will not easily subside. Conversely, if a slowdown in employment is confirmed, the argument for a rate freeze, as suggested by Christopher J. Waller, is likely to gain traction.

[email protected] Correspondent Lee Byeong-cheol Reporter