AFS Markets Blog: Midday 10/11/2026

• Meanwhile in markets, it’s not personal, punters – it’s strictly business. Fed Governor Christopher Waller delivered a cold, calculated message to the doves on the FOMC, making the case not only for a 25bps hike in December, but even a potential 50bps jumbo hike should today’s CPI print come in hot;

• Fed Governor Waller – who, we cannot say enough, was our preferred candidate to take over the chairmanship from Jerome Powell – is calling a spade a spade. No talk of transitory energy inflation here: even a soft October CPI print would not dissuade him from calling for a December hike. Should core CPI come in above 0.3 percent MoM this afternoon – against the consensus and the Cleveland Fed’s nowcasts expectation of 0.2 percent – Waller even thinks a 50bps hike should be part of the conversation;

• To be clear, Waller is not calling for a hiking cycle on the scale of the one following the pandemic, and I think a 50bps hike in December remains unlikely. However, Waller argues that at least two further 25bps hikes are needed over the next couple of meetings (by March in my view). Much to Chair Warsh’s chagrin, forward guidance is clearly not dead yet. We’ll have to wait and see whether doves like NY Fed President Williams can handle the truth;

• Waller’s argument for a December rate hike is that the neutral rate is rising while inflation remains stubbornly elevated, meaning the FOMC needs to hike to keep monetary policy restrictive. Even if crude oil prices are falling, the FOMC shouldn’t wait, since diesel prices – suffering from a lack of refining capacity – won’t come down any time soon, according to Waller. Given the strength of the US economy and the resilience of the labor market, I see little reason not to hike by 25bps in December – especially now that it seems the AI bubble hasn’t completely burst after all;

• Shifting to the market reaction, US Treasury yields have moved higher. The 2y UST yield is now up 5bps on the day, while the 10y yield has erased its earlier decline. The broad dollar has jumped roughly a quarter of a percent since Waller took the stage. Fed funds futures now price in 26bps of hikes for the December FOMC meeting, up from 21bps beforehand. Further out, punters are once again fully pricing in a second hike by the FOMC, with 54bps of hikes priced in by the end of 2027;

• Moving to broader market commentary, Brent crude has dropped below the $90-a-barrel handle for the first time since August. Qatar – which is mediating the current talks between Iran and the US – said both sides were reacting positively to the latest negotiations, following the Qatari PM’s meeting with President Trump and VP Vance yesterday. Nevertheless, it’s not all optimism: European natgas prices have erased this morning’s losses, while the IRGC claims that two tankers “caught fire” in the Strait of Hormuz this morning;

• In our neck of the woods, Bund yields are flat at the short end, while the 30y Bund yield is down 3bps for the day. The Stoxx 50 is up a little over a percent this morning, having broken back above all its major daily moving averages. Nevertheless, Nasdaq futures are down a quarter of a percent this session, following yesterday’s rally of nearly 3 percent;

• Looking ahead, all eyes are on the October US CPI print at 14:30 CET, particularly in the wake of Governor Waller’s comments. Beyond that, there is plenty of Fed and ECB speak to keep an eye on. Lastly, don’t forget that the trilateral talks between the US, Russia and Ukraine in Abu Dhabi are also taking place today and tomorrow (with little else on the calendar).

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