Fed’s Waller Predicts Inflation Decline, 100 Bps Rate Cuts; Market Reacts Mixedly

This analysis is based on the MarketWatch report [1] published on December 17, 2025, detailing Federal Reserve Governor Christopher Waller’s (a finalist for Fed Chair) projection of falling inflation in the next 3-4 months and potential 100 basis points (1%) of moderate interest rate cuts.

On the day of the announcement, U.S. equity markets exhibited mixed performance:

• NASDAQ Composite (tech/growth-focused) rose 0.23% to 23,111.46
• S&P 500 declined 0.24% to 6,800.26
• Dow Jones Industrial Average fell 0.62% to 48,114.26 [0]

Rate-sensitive sectors responded positively, with Utilities leading gains at 2.109%—a reflection of how rate cut expectations enhance the relative attractiveness of utility dividends [0]. In fixed income, the 10-year Treasury yield opened at 4.174% (up 2 basis points), following a 2.5 basis point decline the previous day after labor market data [4].

The outlook hinges on Waller’s inflation forecast accuracy. If inflation falls as predicted, rate cuts could stimulate economic growth and boost valuations in high-growth sectors (tech, consumer cyclical) [2]. However, Atlanta Fed President Raphael Bostic warns that excessive rate cuts could reignite inflation, creating uncertainty about future policy direction [3].

1. Mixed market reaction signals uncertainty
   : Divergent index performance shows investors balancing Waller’s dovish rate cut signal against upcoming inflation data and conflicting Fed views.
2. Rate sensitivity drives immediate sector moves
   : The Utilities sector’s strong gain highlights the direct impact of rate cut expectations on interest-rate sensitive investments.
3. Waller’s status amplifies his message
   : As a Fed Chair finalist, Waller’s views carry greater weight than typical governor comments, increasing market focus on his projections.
4. Upcoming inflation data is critical
   : This data (due later in the week) will validate or refute Waller’s forecast, acting as a potential catalyst for significant market moves [2].

• Inflation uncertainty
  : If inflation fails to decline as expected, rate cuts could reignite price pressures, damaging Fed credibility and increasing volatility [3].
• Market overreaction potential
  : Rate-sensitive sectors like Utilities have already priced in some rate cut expectations; any disappointment in inflation data could trigger a correction [0].
• Fed Chair succession risk
  : Uncertainty about Waller’s appointment as Powell’s successor could introduce policy instability [2].

• Growth sector upside
  : If Waller’s inflation forecast holds and rate cuts are implemented, high-growth sectors (e.g., tech) may benefit from lower discount rates for future cash flows [2].

On December 17, 2025, Fed Governor Christopher Waller (a finalist for Fed Chair) projected falling inflation in 3-4 months and recommended 100 basis points of moderate rate cuts. U.S. markets showed mixed intraday results, with NASDAQ up and S&P/Dow down, while the rate-sensitive Utilities sector outperformed. Conflicting views from Fed’s Bostic and upcoming inflation data create market uncertainty. This analysis provides objective context for market dynamics and risks without offering investment recommendations.