Treasuries Recover as Fed’s Waller Hints at Softer Rate Path

Wall Street entered the session in a cautious mood as traders positioned themselves ahead of closely watched inflation data that could shape expectations for the Federal Reserve’s next policy move. Government bonds rebounded from earlier losses after comments from Federal Reserve Governor Christopher Waller suggested the central bank could still move toward additional interest-rate cuts over time. Stocks, however, struggled to establish a clear direction, while oil prices surged, reflecting persistent volatility across global markets.

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The bond market’s recovery came after Treasuries briefly touched session lows, driven by uncertainty surrounding the reliability of upcoming economic data. With disruptions caused by the government shutdown still lingering, investors have grown increasingly wary that inflation reports particularly the consumer price index may not fully capture current price trends. Against that backdrop, Waller’s remarks offered timely insight into how Fed officials are interpreting the data environment.

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Waller signaled that further rate reductions remain a possibility, reinforcing the view that policymakers are still leaning toward easing if inflation continues to cool. His comments were widely interpreted as dovish, especially by bond investors searching for confirmation that the central bank is nearing the end of its restrictive phase. Even so, the Fed governor was careful to temper expectations, noting that there is no urgency to act while inflation remains above target.

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That measured tone highlighted the delicate balance facing policymakers. While recent inflation readings have shown signs of moderation, price pressures remain elevated enough to justify patience.

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Waller emphasized that the Federal Reserve has the flexibility to wait for more clarity before adjusting policy, particularly at a time when data quality may be uneven. For investors, the message underscored that rate cuts are still on the table but not guaranteed in the near term.

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Equity markets reflected that uncertainty. Major stock indexes wavered throughout the session as traders weighed the prospect of future rate relief against lingering concerns about inflation and economic resilience.

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Without a decisive signal from policymakers or fresh data to anchor expectations, investors largely remained on the sidelines, resulting in choppy trading and limited conviction.

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The rise in oil prices added another layer of complexity to the market narrative. Energy markets advanced sharply, fueled by a mix of supply concerns and broader geopolitical factors. Higher oil prices can complicate the inflation outlook, reinforcing the Federal Reserve’s cautious stance and reminding investors that disinflation is unlikely to be a straight line. For equity markets, especially rate-sensitive sectors, energy-driven inflation risks remain an important variable.

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Meanwhile, bond investors appeared more willing to lean into the possibility of eventual easing. Treasury yields moved lower as traders reassessed the likelihood that the Fed will begin cutting rates later rather than sooner. The rebound in bonds suggested that, despite near-term uncertainty, markets still believe the broader policy trajectory points toward lower borrowing costs over time.

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The reliability of upcoming inflation data remains a key concern. Economists have warned that disruptions linked to the government shutdown could distort certain components of the consumer price index, making it harder to draw firm conclusions from a single report. As a result, investors are increasingly focused on trends across multiple data releases rather than reacting to one headline number.

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Looking ahead, market participants are likely to remain highly sensitive to any commentary from Federal Reserve officials. With inflation still above target and economic growth holding up better than expected, the central bank has little incentive to rush. At the same time, softer data could quickly revive expectations for rate cuts, especially if labor-market conditions begin to cool.

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For now, the market appears stuck in a holding pattern. Stocks continue to search for direction, bonds are responding to incremental shifts in policy expectations, and commodities are introducing fresh volatility. Until inflation data provides a clearer signal or Fed officials offer stronger guidance investors may remain cautious, balancing optimism about future rate cuts with realism about the challenges that still lie ahead.