Federal Reserve Governor Christopher Waller delivered a hawkish speech on July 13, hinting that rate hikes may be needed in the near term if core inflation remains elevated. This marked a significant shift from his previous dovish stance. The market reacted immediately with July rate hike probability surging from 22% to 39%. The 2-year Treasury yield rose to 4.75%, the highest since early 2025. The dollar strengthened broadly.
Market Implications
The key determinant of whether the Fed will hike in July is this week’s CPI data. If core CPI month-on-month exceeds 0.3%, the probability of a July hike could rise above 50%. The Middle East situation adds complexity by increasing inflation expectations while also creating downside economic risks. Investors should prepare for higher volatility around the CPI release.