Waller wants more Fed hikes, just not back to back

Key points

• Fed Governor Christopher Waller said on 8 October that more rate hikes are likely if data come in as expected
• He added that the hikes need not come at consecutive meetings, which markets read as a hint of an October pause
• Markets price about an 18% chance of an October hike and about 82% for December
• Spot gold rose 1.3% to $4,189 by 14:16 UTC on 9 October, but sits 3.2% below its level on the day of the September hike

The Federal Reserve is not done raising rates, but it may not be in a hurry. That was the message from Governor Christopher Waller, who told a central bank forum in Istanbul on Thursday that he expects further increases while leaving the timing open.

"If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal," Waller said, according to reports of his remarks. The increases "do not need to come at consecutive meetings, but they should be in place in an acceptable period of time," he added.

Why it matters: A hike pushes up yields on cash and bonds, the main thing gold competes with. A pause in October followed by a December move gives gold a few weeks without a new rate shock, but it does not change the direction of policy.

What Waller actually said

Waller is one of seven governors on the Fed's board and votes at every meeting. His view carries weight because he often signals where the committee's centre is heading.

He made three points. First, more hikes are coming if inflation behaves as forecast. Second, those hikes can be spaced out. Third, the Fed can tell markets roughly where rates are going without promising an end point.

That last point drew attention. The Scotsman Guide read it as a break with Chair Kevin Warsh, who has pushed for a "timelier" return to 2% inflation since the Fed raised its target range by a quarter point to 3.75% to 4.00% on 16 September. Waller's wording echoed that phrase while softening the pace.

He also pointed to the Fed's own projections. In September, 16 of the 18 officials who submitted forecasts expected at least one more hike at the two remaining meetings of 2026. New York Fed President John Williams said on 24 September that another hike by year end was "a reasonable way of thinking about it."

How markets read it

Bond traders took the speech as permission to stop selling, at least for a day. On Thursday the 10-year Treasury yield fell about 12 basis points, from 5.354% to 5.235%, after touching its highest level since 2002 earlier in the week. The 2-year yield, which tracks Fed expectations most closely, stood near 4.80% on 8 October.

By Friday the dollar index had slipped to about 102.2, after dipping below 102 intraday.

Rate pricing barely moved on the bigger question. The day before the speech, futures put the odds of one or more hikes by year end at about 85%. On Friday, market pricing still put the odds of a December hike near 82% and of an October move near 18%.

In short, traders shifted their bets on timing, not on direction.

What it meant for gold

Gold had a rough start to October. Spot fell to an intraday low of $4,070.60 at 12:48 UTC on 7 October as oil spiked above $105 and the Fed's September minutes showed officials ready to keep tightening. That was the lowest point on our intraday feed this month.

Since Waller spoke, gold has climbed. By 14:16 UTC on Friday it was at $4,189.40, up 1.3% on the day and about $119 above Wednesday's low. President Donald Trump's pledge not to strike Iran before the 3 November midterms helped too, by taking some heat out of oil.

The bigger picture is less friendly. Gold closed at $4,328.20 on 16 September, the day of the hike. It is now 3.2% lower. It is 5.1% below its level a month ago and 22.8% below the record of $5,426 set on 29 January.

The pattern is familiar. When markets expect higher rates, the yield on a Treasury bill becomes a stronger rival to a metal that pays nothing. When those expectations steady, gold gets room to recover.

Why the timing matters more than usual

There are only two Fed meetings left in 2026, on 27 and 28 October and in December. If the Fed skips October, the next hike most likely lands in December. That gives gold roughly seven weeks before the next rate move.

What happens in between could still change the path. The September consumer price index is due on 14 October. A hot reading, especially with Brent crude above $100 a barrel, would revive talk of an October hike. A cooler one would support Waller's patient approach.

Oil is the wild card. Brent closed at $104.28 on 8 October before easing to about $102.80 on Friday. Energy costs flow into headline inflation quickly. Trump's pledge only covers the weeks before the vote, and reports say the Pentagon has drawn up options for later.

Long-dated yields are another risk. The 30-year Treasury yield rose above 5.7% after Waller's remarks, one report said, even as shorter yields fell. If investors keep demanding more to hold long bonds, real yields stay high, and that has been the strongest headwind for gold since the summer.

What it means for buyers

For people who buy gold to hold, the Fed's message is mixed. Rates are going up, which is usually bad for gold. But the pace looks slower, and the market has already priced most of what Waller described.

For buyers outside the US, the dollar matters as much as the gold price. When the dollar softens, the gain in dollar gold shows up smaller in euros or rupees. Gulf buyers on a dollar peg feel the US move one for one.

Central bank buying also continues under the surface. China's central bank added about 740,000 ounces in September, its biggest monthly purchase in three years, even as prices fell. That kind of steady demand does not react to one speech.

What to watch

• 14 Oct: US September consumer price index, the main test of whether October stays a pause
• 28 Oct: Fed rate decision and Chair Warsh's press conference
• 29 Oct: European Central Bank decision, with markets weighing a hike that would move the euro and the dollar
• 3 Nov: US midterm elections, the end of the window covered by Trump's Iran pledge