Federal Reserve Governor Christopher Waller, once seen as a dove favoring rate cuts, delivered a hawkish speech in Frankfurt on May 22 that sent shockwaves through financial markets. His central message: the Fed's "easing bias" language must be removed, and if inflation fails to show meaningful progress toward the 2% target, rate hikes are firmly on the table.
April's Personal Consumption Expenditures index climbed to 3.8%, nearly double the Fed's target. Waller cited two key drivers: energy price shocks from the Iran conflict and lingering tariff effects. He emphasized that the likelihood of a rate cut is now equal to that of a rate hike.
Markets reacted swiftly. Futures now price in a 67% chance of a 25 basis-point rate hike by October. Bitcoin dropped to around $76,700, reflecting the increased opportunity cost of holding non-yielding assets in a higher-rate environment.
For crypto and risk assets, the critical variable is whether inflation expectations become "unmoored," which would force aggressive Fed action regardless of economic growth consequences.