Fed Governor Waller Signals Openness to September Hold, Sparking Broad Stock Rally as ISM Services Beats and Yields Retreat

Fed Governor Christopher Waller said in remarks released the morning of September 3 that while inflation remains 'meaningfully above' the FOMC's 2% goal, recent data show signs of disinflation, and if that continues over the next two weeks of incoming data he would 'be inclined to support holding the target for the federal funds rate at its current setting' at the September 16-17 meeting. Waller argued the effects of higher tariffs have already been substantially reflected in consumer prices and that post-Mideast-war energy costs have not broadly lifted prices elsewhere, calling underlying inflation 'moderating' — a notably more dovish read than Fed Chair Kevin Warsh's hawkish August 28 Jackson Hole keynote. Markets read it as a clear dovish signal: CME FedWatch odds of a September rate hike fell roughly 12 percentage points to about 54.6% (from ~66% the day before), and the 10-year Treasury yield retreated from the week's 4.818% high (its highest since November 2023) as bonds rallied. Stocks surged on the news: the S&P 500 rose about 1.1% to roughly 7,750, the Dow Jones Industrial Average gained about 1.2% to roughly 53,685, and the Nasdaq Composite jumped about 1.4% to roughly 26,584 — all three indexes' best day in weeks, snapping the prior week's rate-hike-driven slide. Same-day data added to the mixed picture: the ISM Services PMI for August came in at 55.4%, up 1.3 points from July's 54.1% and beating the roughly 54.5% forecast — the 26th straight month of services-sector expansion — while weekly initial jobless claims for the week ending August 29 rose to 206,000, a touch above the 205,000 consensus and up 2,000 from the prior week's revised 204,000, with the 4-week moving average climbing to 207,250.