Big Reversal! Hawkish Waller Suddenly Turns Dovish, September Rate Hike Expectations Cool Down, Gold Prices Surge

Huitong Network, September 3—— Waller went from being a top figure, to becoming transparent, to being overlooked, and now stunning everyone.

On the eve of the Federal Reserve's September policy meeting, the market was generally dominated by hawkish expectations, but a sudden change in stance from a core Fed official completely disrupted the market's rhythm.

Federal Reserve Governor Christopher Waller, who has long been known for his vacillating positions and was once disregarded by the market, unexpectedly issued a strong dovish signal in his latest statement, shifting from a previously hawkish stance to supporting a pause in rate hikes. This directly cooled market bets on further rate increases, caused US Treasury yields to drop, the US dollar to weaken, and triggered a strong surge in gold prices.

Once the Top Contender for Fed Chair, Then Overtaken and Lost His Aura

At the beginning of the competition for this year’s Federal Reserve Chair, Waller was the undisputed leading candidate.

He has a solid professional background, mature policy understanding, and maintains an appropriate distance from the White House, with relatively independent positions and strong recognition from Wall Street institutions. At that time, the market overwhelmingly bet on him succeeding as the next Fed chair, recognizing him as the core candidate.

However, the situation quickly reversed as former Fed Governor Kevin Warsh broke through and surpassed him. As the market's probability of Warsh’s appointment continued to rise, his odds of success at one point shot up to 87%, completely overtaking Waller. This defeat in the chair race became a pivotal turning point for Waller’s influence in the market.

Repeatedly Shifting Positions, Declining Influence on Market Discourse

After losing his edge as the chair frontrunner, Waller began to vacillate frequently on monetary policy, sometimes taking a hawkish anti-inflation stance, and other times leaning dovish with a focus on economic resilience—resulting in highly unstable policy attitudes.

This unpredictability made it difficult for the market to maintain stable expectations, and major institutions gradually stopped treating his comments as a core reference for Fed policy, greatly weakening his influence and lowering market attention.

Especially against the backdrop of volatile recent inflation data and several Fed officials issuing hawkish signals, the market had already defaulted to expecting Waller to maintain a hawkish tone and support a September rate hike. Almost no one anticipated a reversal in his position.

Unexpected Major Shift! The Vacillating Hawk Turns Dovish

But in his latest public statement, Waller took a completely unexpected step, officially turning dovish and becoming the first major official among the current Fed hawks to clearly soften his stance.

Waller openly admitted that while inflation remains significantly above the Fed’s 2% policy target, the market is already showing clear signs of deflation, and a downward trend in inflation is being established.

He cited core data to support his view: the Fed’s preferred inflation indicator, the three-month growth rate, has sharply fallen from 4.76% in February to the current 3.05%. Both the speed and magnitude of the decline are considerable. He also pointed out that some statistical methods overestimate the current level of inflation. Once these are recalibrated in subsequent data, the inflation readings at the beginning of the year are likely to be revised downward further, meaning inflationary pressures are actually better than the market perceives.

On this basis, he offered a clear policy stance: to “give deflation a chance,” inspired by “give peace a chance.” If the core inflation data to be released in the next two weeks—such as CPI and PPI—continue to improve, he will fully support holding rates steady in the September meeting.

He stated plainly that a single 25-basis-point rate hike would not be able to quickly bring inflation back to the 2% target, and that a short period of observation—waiting for the data to materialize—is the best choice.

However, Waller did not completely rule out further rate hikes, maintaining a data-dependent bottom line.

He emphasized that if August’s inflation data rebounds and the downward trend reverses, he will immediately change his position and support a small rate hike to tighten policy, in line with the Fed’s traditional principle of being guided by data.

Market Repricing in an Instant: Rate Hike Expectations Cool, Gold Price Spikes

This unexpected dovish pivot triggered a rapid, synchronized response in financial markets, completely reversing the hawkish trading sentiment ahead of the holiday.

In the rates market, according to CME FedWatch Tool data, the probability of a Fed rate hike in September plummeted, falling about 12 percentage points in a single day and rapidly cooling rate hike expectations.

US Treasury yields dropped in tandem; the 10-year yield fell by 4 basis points to 4.754%, providing temporary relief to the Treasury market.

The foreign exchange and precious metals markets reacted most dramatically: the US dollar index plunged, while gold saw a powerful explosive rally, with spot gold surging as much as 2% intraday and quickly breaking out with a vertical spike.

The market logic is clear: cooling expectations for rate hikes and falling Treasury yields greatly reduce the opportunity cost of holding non-interest-bearing gold, and combined with a weaker dollar, directly propel gold’s robust rebound.

Key Observation for the Future: Inflation Data Will Ultimately Set the Direction

Overall, Waller’s statement is not a completely dovish turn but a conditional pause in rate hikes, with the core factor being subsequent inflation data.



If inflation continues to cool, the current gold rally may continue; if inflation rebounds more than expected, Waller and the Fed as a whole may turn hawkish again, and the market will see a swift correction.


(Spot gold intraday chart, source: Yihuichong)

Eastern Standard Time 21:42, spot gold is currently quoted at $4,471 per ounce.