Wall Street Rallies and Bond Yields Fall as Fed Governor Waller Cools Rate Hike Bets

U.S. Treasury yields tumbled and major equity indexes on Wall Street rallied sharply as comments from Federal Reserve Governor Christopher Waller eased investor anxiety regarding potential near-term interest rate hikes. Waller stated during remarks in Washington that he would be inclined to keep rates steady if incoming inflation data confirms that price pressures are cooling down.

The shift in monetary policy expectations rippled swiftly across global financial markets, reversing a recent surge in borrowing costs driven by inflation concerns and geopolitical tensions. Market participants adjusted their positions as the probability of a benchmark rate increase at the central bank's upcoming September policy meeting declined significantly following the remarks.

The benchmark 10-year U.S. Treasury yield fell 3.8 basis points to 4.756%, putting the debt instrument on track for its steepest single-session drop since August 25. This downward movement followed a spike on Wednesday when the 10-year yield touched 4.818%, marking its highest level since November 1, 2023. Shorter-dated maturities experienced even sharper pullbacks, with the two-year Treasury yield dropping 5.6 basis points to 4.33%. The two-year yield had previously climbed to 4.41% on Wednesday, reaching its highest mark since January 2025.

Debt markets had faced mounting pressure earlier in the week as global yields surged amid renewed fears of inflation. Rising crude oil prices resulting from ongoing military conflict involving the U.S. and Iran added to inflationary apprehensions, alongside hawkish comments from select central bank officials. Following Waller's intervention, expectations for a September rate hike moderated substantially. According to CME FedWatch data, markets priced in a 50.4% probability of a rate increase, down sharply from 63.2% in the previous session.

Wall Street indices responded enthusiastically to the easing of rate hike fears, with all three major U.S. stock benchmarks registering gains of 1% or higher. The tech-heavy Nasdaq Composite led the advance, climbing 366.39 points, or 1.40%, to settle at 26,584.21 points. The broader S&P 500 added 81.67 points, or 1.07%, to finish at 7,748.27 points, while the Dow Jones Industrial Average rose 627.37 points, or 1.18%, closing at 53,689.32 points.

Market breadth received a dual boost from macroeconomic developments and corporate reporting updates. "Commentary from Fed Governor Waller (is) providing a broad lift for markets writ large," said Bill Northey, senior investment director at U.S. Bank Wealth Management in Billings, Montana. Northey noted that underlying indices continued to reflect earnings reporting trends from late-reporting firms, creating clear differentiation between high-profile semiconductor forecasts and software sector outperformance.

Individual corporate developments generated notable sector-specific volatility beneath the broader market rally. Software developer Snowflake experienced a surge after issuing an annual revenue forecast that exceeded expectations, lifting peer equities including ServiceNow, Salesforce, and Adobe. Meanwhile, chipmaker Broadcom declined following a fourth-quarter revenue projection that fell short of lofty artificial intelligence expectations, underscoring the high performance bar demanded of infrastructure providers.

In major corporate activity, Nvidia shares advanced after confirming an agreement to acquire developer platform Hugging Face for $12.9 billion. The strategic move positions the chip giant to expand its ecosystem in direct challenge to competitors OpenAI and Anthropic. Crypto-linked equities also advanced as bitcoin staged a recovery following two consecutive sessions of losses, providing upward momentum for Coinbase Global, Strategy, and retail trading platform Robinhood Markets.

Economic releases published alongside Waller's remarks pointed to continued stability across the domestic labor market and service sector. The U.S. Labor Department reported that initial jobless claims increased by 2,000 to a seasonally adjusted 206,000 for the week, slightly exceeding the 205,000 estimate compiled by Reuters economists. Markets are now looking ahead to the comprehensive monthly employment report scheduled for release on Friday.

Additional data from the Institute for Supply Management showed that its nonmanufacturing Purchasing Managers' Index rose to 55.4 last month, surpassing the estimated 54.2 reading and improving from 74.1 in July. However, the report also highlighted persistent cost pressures, showing that services input prices reached their highest level since October 2022. Analysts noted that upcoming Consumer Price Index data will remain the definitive factor for determining monetary policy trajectories toward the end of the year.