WARSH: FED CANNOT AFFECT ONE-OFF EFFECTS, BUT ONLY PERSISTENT EFFECS || ANY CHANGES IN BALANCE SHEET WOULD BE PART OF A PUBLIC DISCUSSION

Federal Reserve Governor Christopher Waller (WARSH) emphasized that monetary policy can only influence persistent inflationary pressures, not one-off price shocks, underscoring the central bank’s focus on underlying trend inflation. His comments highlight the transmission channel of inflation expectations, reinforcing that rate decisions are contingent on sustained deviations from the 2% target rather than transitory supply-side effects. This stance supports a data-dependent approach, keeping front-end Treasury yields and Fed funds futures sensitive to incoming inflation prints, particularly services and wage data. The remark on balance sheet policy being subject to public discussion signals transparency, reducing near-term tapering or expansion risks, which may limit volatility in longer-dated yields. Traders will closely watch the next FOMC minutes and the PCE inflation report for signals on whether current price trends are being reclassified as persistent.

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