Market analysts suggest investors may have overreacted to Fed governor Christopher Waller’s latest speech, while some warn there is still no clear evidence to support a 50 basis point rate cut.

Waller’s highly anticipated speech triggered significant market volatility, largely due to his promises of “strong action” and potentially “early rate cuts” if necessary, according to analyst Cameron Crise. However, Crise noted that the market may have overlooked the conditional nature of Waller’s remarks, particularly the emphasis on the word “if.”

In his speech, Waller expressed optimism that the economic expansion would continue and spent considerable time explaining why the Sam rule, often invoked in discussions of recessions, is descriptive rather than predictive. He also noted that the type of economic shock that typically triggers recessions has not yet occurred, suggesting that more data is needed before making a judgment on the extent and pace of any potential easing.

Crise said it was clear from Waller’s perspective that policymakers had not yet decided how aggressive they would be in cutting rates. That view was echoed by New York Fed President John Williams, who had previously said a 50 basis point rate cut was not a foregone conclusion.

Waller also said he believes there is enough room to lower the policy rate while maintaining some restraint to ensure inflation continues to move towards the 2% target, as reflected in employment data, during a “series of rate cuts.”

Given these factors, Crise and other analysts believe the initial market reaction to Waller’s speech may have been overblown, with investors reading too much into the potential for aggressive rate cuts without sufficient evidence to support such a move.

*This is not investment advice.