#Late night, two rounds of declines, and the Fed finally laid its cards on the table

—When the market most needs reassurance, the Fed reminds everyone: if inflation won’t cooperate, the central bank won’t step in to save the day.
All of the indicators we tracked on Monday broke down across the board:
Crude oil surged sharply; US crude oil rose well above $75, closing at $78;
Gold fell sharply, at one point dipping below $4,000 during the trading session;
US stocks were down across the board; the Dow Jones fell 0.26%, the S&P 500 fell 0.79%, and the Nasdaq fell 1.55%;
At the same time, the US Dollar Index climbed above the 101 level, and the yield on the 10-year US Treasury note rose above 4.60%.
Crude oil, the dollar, and Treasury yields all surged to dangerous levels, putting pressure on other markets. Compared with gold’s drop, US equities look slightly more conservative.
There were many negative developments yesterday—for example, the US launched attacks on Iran for three straight days, and the South Korean stock market saw a sharp plunge—but what worries us most is one line from the Fed:
Fed Governor Waller (a banner-bearer of traditional hawkishism / neutrality) said: “If core inflation to be released this week stays hot again, then the FOMC would need to consider tightening monetary policy in the near term.”
First, Waller’s remarks landed around 00:00 Beijing time, when the market was still falling. The Fed not only didn’t prop up the market, but instead caused a second round of declines—from the intraday movement of gold, you can clearly see it: one round of selling was triggered by crude oil, and the other round was triggered by Waller’s comments.
Second, based on what was said, this is the most hawkish signal the Fed has sent so far this year—although it’s conditioned, the words “rate hikes in the near term” are extremely striking, with a sense of urgency. The probability of a 25 basis point rate hike in July has already risen to 50%.
In the past few weeks, the market could still comfort itself with “oil prices rising is only a temporary geopolitical shock; as long as core inflation (excluding energy and food) holds steady, the Fed won’t do anything rash.” But this time, Waller spelled it out directly: “We can’t keep blaming inflation on earlier tariffs and the surge in oil prices.”
Third, Waller chose to make the remarks one day before this week’s inflation data was released (to forcefully interfere with inflation expectations). As a rule, ahead of CPI data releases, Fed officials usually stay low-key. Wall Street’s general expectation is that headline inflation will cool somewhat (forecast: year-over-year rise easing from 4.8% to 4.2%), while core inflation remains unchanged (forecast: holding at 2.9%)—which should have been good news, but it’s core inflation that Waller emphasized.
What truly happened yesterday wasn’t that the market suddenly feared war; rather, the market began trading simultaneously “higher oil prices, higher inflation, and a more hawkish Fed.” Today, the importance of CPI lies in whether it can dismantle the “rate hikes in the near term” framework that Waller just set up.
Risk warning: This article is based only on publicly available information and market data for analysis and is for information exchange only. It does not constitute any investment advice or any promise of returns. Financial markets involve risks, and any investment decision should be made independently based on one’s own circumstances.