CICC: Waller's Outsourcing of Tightening Could Prompt Market to Price in Fed Delay

CICC analysis suggests Fed Governor Waller is relying on market-driven rate hikes for tightening, a strategy that may erode policy credibility and trigger repricing of delayed Fed action.

Woofun AI notes that CICC identifies Federal Reserve Governor Christopher Waller’s strategy of reducing direct policy intervention as an attempt to "outsource" tightening functions to the market. The report argues that relying on spontaneous rises in market interest rates to tighten financial conditions could undermine confidence in the Fed's policy credibility, especially given persistent inflation above target.

Following the July meeting where rates were held steady despite three voting members favoring a 25-basis-point hike, long-end U.S. Treasury yields rose sharply and the yield curve steepened. CICC warns that if future employment or inflation data exceed expectations, markets may price in higher long-term inflation risks and the possibility of the Fed acting too late, leading to further increases in long-end interest rates and heightened adjustment pressure on risk assets.