Key facts
- US Treasury yields dropped from multi-year highs on Thursday.
- Federal Reserve Governor Chris Waller indicated he would support keeping interest rates unchanged.
- New York Fed President John Williams described recent inflation data as encouraging.
- The probability of a September Fed rate hike decreased significantly.
- Major US stock indexes rallied following the comments.
Investors found relief on Thursday as bond yields retreated from multi-year highs, reversing a global sell-off from earlier in the week. The shift was largely attributed to dovish remarks from Federal Reserve Governor Chris Waller, who indicated he would support keeping interest rates unchanged at the upcoming FOMC meeting, provided no unexpected economic data emerges. This eased investor concerns about further rate hikes, with the probability of a September increase falling to 50% from 63% the previous day. New York Fed President John Williams also contributed to the positive sentiment, calling recent inflation data "encouraging" and attributing the rise in yields to economic strength. The 2-year US Treasury yield, closely watched for Fed policy implications, fell 5 basis points to 4.33%, while the 10-year yield declined 4 basis points to 4.75%. US stock markets responded positively, with the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 all experiencing gains. Economists at Goldman Sachs noted that Waller's comments were interpreted as dovish, suggesting a Fed hold in September is likely, contingent on continued disinflation. Gregory Daco, chief economist at EY, echoed this sentiment, stating that the Fed sees little urgency to change rates given firm growth and a satisfactory labor market, as long as disinflation progresses. However, inflation remains a concern, particularly with ongoing geopolitical tensions and oil prices nearing $100 a barrel. Investors are now awaiting August inflation data next week, a key factor for the Fed's next decision.