Waller’s speech in Bangkok is “dovish”; the market bets that the Fed will hold rates in October, with the probability of a rate hike falling below 15%.

The statements made by Federal Reserve Chair Waller in Bangkok have significantly cooled market expectations for an interest rate hike this month.

On Friday morning, during a conversation at the International Monetary Fund Annual Meeting, Waller made almost no specific comments about the outlook for monetary policy and simply reiterated the Federal Reserve's commitment to achieving price stability. This "dovish" stance prompted investors to quickly adjust their bets—the market-implied probability of the Federal Reserve raising interest rates at the October 27-28 policy meeting plunged from around 27% before Waller's remarks to below 15%. As a result, U.S. stock futures extended their gains, with S&P 500 futures shifting from loss to gain, rising by 0.2%, while the dollar edged lower.

Waller's comments reinforced external expectations that the Federal Reserve will pause rate hikes in October. The team led by Jan Hatzius, Chief Economist at Goldman Sachs, pointed out in a research note that, in combination with recent statements by other Federal Open Market Committee (FOMC) officials, Waller's speech further indicates that the Federal Reserve will hold steady in October, and the bank expects the next rate hike to take place in December.

Faced with market concerns about the path of interest rate hikes, Waller was intentionally restrained in his remarks in Bangkok. "We have made it clear that we will achieve price stability, and about a month ago, we rolled back a certain degree of accommodative policy," he said. "I will not prejudge the outcome of the meeting, and I don't think I should say now what actions I might take at the remaining meetings this year."

Derek Tang, an economist at Monetary Policy Analytics, said in a client note:

"It's clear he doesn't intend to send any signals that the market could interpret as hawkish."

Waller also stated that since the FOMC meeting in September, "the overall economic situation is largely in line with our expectations." In recent weeks, several Federal Reserve officials have reiterated that further rate hikes may still be necessary this year, but they have also emphasized that there is enough time to collect economic data before taking action again.

In September, the Federal Reserve raised the benchmark interest rate by 25 basis points, marking the first hike since 2023, with unanimous support from all 19 policymakers. At the same time, most officials indicated in the dot plot that there will be one more rate hike this year.

Against this backdrop, whether the October meeting will see any action or whether a rate hike will be postponed until December has become the central question for markets. Prior to Waller’s remarks in Bangkok, the probability of a hike hovered around 27%, and his comments accelerated the decline in expectations, making a pause increasingly mainstream.

In addition to monetary policy, Waller also shared extensive views on artificial intelligence in Bangkok, calling it the most important innovation in the global economy during his lifetime, but at the same time remaining cautious about its short-term impact.

"It will clearly impact the demand side of the economy first, and only later affect the supply side," Waller said. "As a central bank official, my job is to maintain price stability and full employment, so this change must be treated as a shock and taken seriously."

Waller believes that artificial intelligence is a positive supply shock in the medium term, but is currently boosting aggregate demand, and its impact on the labor market remains uncertain. Some of his colleagues have expressed similar concerns, and some officials even question whether the current investment wave supporting artificial intelligence infrastructure could lead to economic overheating.

Waller also announced that a task force dedicated to studying the impact of artificial intelligence on productivity and employment will hold an on-site hearing in the San Francisco Bay Area on November 16. This is one of five task forces he has convened, each of which will submit policy recommendations to the FOMC by the end of this year or early 2027.