Waller's rate-hold stance lifts gold 3% as Fed split widens

Waller's conditional support for holding rates at 3.50%-3.75% next month sent gold futures up 3 percent and the 10-year Treasury yield down to 4.73 percent.

"If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting," Waller said in remarks prepared for a Reuters interview in Washington on Thursday.

The signal rippled across assets. New York gold futures climbed 3 percent and spot gold gained 2.5 percent, while silver futures rose 3.5 percent and spot silver advanced 3 percent. The 10-year Treasury yield fell 4.8 basis points to 4.73 percent in pre-market trading, and the two-year yield dropped more than 6.8 basis points to 4.3007 percent. Equities advanced as investors trimmed bets on a September rate increase.

The stance diverges from Fed Chair Kevin Warsh, who told the Jackson Hole symposium last week that recent tame inflation prints "do not tell me that underlying trends have meaningfully improved." Markets had priced a higher probability of a hike after Warsh's remarks, and Waller's comments now reset that calculus ahead of the Sept. 15-16 FOMC meeting.

Waller pointed to the three-month annualized core PCE rate, which has fallen from 4.76 percent in February to 3.05 percent through July, as evidence the disinflation trend remains intact. Headline PCE rose 3.7 percent over the 12 months through July, with core PCE at 3.3 percent. But Waller argued the annual figures overstate current price pressures: prices ticked down 0.1 percent from May to June and rose just 0.2 percent from June to July, according to the Fed's preferred gauge.

The August consumer price index, due Sept. 11, and the producer price index, both scheduled for release next week, will be the decisive inputs. "I'm willing to sit and wait and be patient to see if the next inflation report also shows it declining," Waller said. "But if it reverses, then you know it's time to pull the trigger and hike rates."

Waller's conditional hold marks a shift from his July posture, when he cautioned that the FOMC would need to consider tightening if core inflation remained elevated, describing policy as being at a "crossroads." At the time, core PCE had risen from 3 percent in December 2025 to 3.4 percent in May, driven by trade levies, higher energy costs tied to Middle East hostilities, and strong demand from AI infrastructure investment.

The policy split within the Fed is now visible. Fellow Governor Michael Barr said Tuesday that a failure to bring inflation down sufficiently would earn his vote for higher rates. New York Fed President John Williams said Wednesday he has been encouraged by recent data but wants more evidence before concluding policy is sufficiently restrictive.

For precious metals, the reduced rate-hike risk weakens the dollar and lowers the opportunity cost of holding non-yielding assets. For bond markets, Waller's stance suggests the recent backup in yields that followed Warsh's hawkish tone may have overshot. If August CPI confirms the disinflation trend, the hold scenario firms and rate-sensitive assets could extend gains into the FOMC decision. If the data comes in hot, Waller has made clear a hike is back on the table — a scenario that would reverse Thursday's moves.

This article is for informational purposes only and does not constitute investment advice.