--- title: "Waller \"Hints\" at Changing Inflation Metrics, Market \"Smells Trouble\"" type: "News" locale: "en" url: "https://longbridge.com/en/news/294443196.md" description: "Federal Reserve Governor Waller previously stated that a broader set of indicators than the PCE would be referenced when assessing inflation, hinting at a potential adjustment to the inflation framework after January next year. These remarks triggered market turbulence, with the 30-year breakeven inflation rate recording its largest single-day gain since 2024. Economists questioned whether the working group might serve as a cover for redefining the inflation challenge, while noting that viable alternatives to the PCE are extremely limited" datetime: "2026-07-31T02:28:09.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/294443196.md) - [en](https://longbridge.com/en/news/294443196.md) - [zh-HK](https://longbridge.com/zh-HK/news/294443196.md) --- # Waller "Hints" at Changing Inflation Metrics, Market "Smells Trouble" A signal released by Federal Reserve Governor Waller regarding the inflation assessment framework is sending ripples through the market. On Wednesday (US Eastern Time), Waller stated at the Federal Reserve's interest rate decision press conference that **the scope of inflation data he monitors is no longer limited to the Federal Reserve's long-standing preferred indicator, the Personal Consumption Expenditures Price Index (PCE).** **He also hinted that the Federal Reserve might articulate changes to its strategic inflation framework after January next year.** These remarks quickly sparked widespread debate among investors and economists. The 30-year breakeven inflation rate subsequently posted its largest single-day increase since 2024. Some market participants indicated that Waller's comments on the PCE were a significant driver of this volatility. ## Waller Redefines the "Inflation Lens" Waller used distinct wording at Wednesday's press conference: > We will achieve the 2% inflation target, and no higher. But to achieve this goal, I need to reference a broader range of inflation data than just Personal Consumption Expenditures (PCE). The Personal Consumption Expenditures Price Index (PCE) has long been the Federal Reserve's preferred inflation metric, used by policymakers in their forecasts. Official data showed that the PCE rose 3.7% year-on-year in June. Waller stated: > We will continue to use this indicator. But he added: > Who knows? After January next year, we may see adjustments to our strategy. This statement relates to several working groups he previously established, one of whose tasks is to review the Federal Reserve's inflation framework and the economic data it monitors. Michael Feroli, Chief US Economist at JPMorgan Chase, was blunt in a report to clients: > These remarks seem to confirm external suspicions— **the establishment of the working group is merely a cover for redefining the inflation challenge.** ## Limited Options for Alternative Indicators In the discussion on "alternatives to the PCE," former Richmond Fed President Jeffrey Lacker poured cold water on the idea. Lacker said: > It is far from obvious what they could shift to, and more importantly, by what criteria they would make such a choice. The former Fed official, known for his hawkish stance, emphasized: > **You must choose a reliable, broadly covered index. Currently, only two qualify: the PCE Price Index and the CPI, and that's it.** The Consumer Price Index (CPI) rose 3.5% year-on-year in June. This indicator also serves as the benchmark for pricing US Treasury Inflation-Protected Securities (TIPS) and for Social Security cost-of-living adjustments. **Lacker added that, over the long term, the performance of the two indices "does not differ significantly."** Kathy Bostjancic, Chief Economist at Nationwide, pointed out the key market demand: > Clarifying which inflation indicators he and the Federal Reserve will monitor is an urgent priority. Waller did not reveal on Wednesday which other indicators he is considering. This vacuum itself is the core source of current market anxiety. ## Bond Market Alert, Long-End Premiums Face Revaluation Pressure In the US inflation-linked bond market, valued at over $2 trillion, Waller's remarks have triggered a chain reaction. JPMorgan strategists advised clients to bet on rising inflation expectations through five-year, five-year forward inflation swap contracts. Citigroup economists Andrew Hollenhorst and Veronica Clark held a relatively optimistic view in a Thursday report, predicting: > It will become clearer in the coming months that the broader inflation indicators monitored by Waller will not show a worrying acceleration in growth. However, the Citigroup strategy team also warned that Waller's stance could introduce a new trading range for the five-year, five-year forward inflation rate, **an indicator that had been capped at around 2.5% for many years.** Jon Hill, Head of US Inflation Strategy at Barclays, pointed out deeper market risks: > Once market confidence in the Federal Reserve's determination to fight inflation declines, or uncertainty rises, it will translate into higher term premiums and inflation risk premiums. In the US Treasury market, valued at over $31 trillion, an increase in the term premium will directly push up long-end interest rates. The US Treasury yield curve continues to steepen between the 2-year and 30-year tenors. The 30-year Treasury yield remains near its highest level since 2007. ### Related Stocks - [JPM.US](https://longbridge.com/en/quote/JPM.US.md) - [NA.US](https://longbridge.com/en/quote/NA.US.md) - [C.US](https://longbridge.com/en/quote/C.US.md) - [BCS.US](https://longbridge.com/en/quote/BCS.US.md) - [JPM-M.US](https://longbridge.com/en/quote/JPM-M.US.md) - [JPM-C.US](https://longbridge.com/en/quote/JPM-C.US.md) - [JPM-D.US](https://longbridge.com/en/quote/JPM-D.US.md) - [JPM-L.US](https://longbridge.com/en/quote/JPM-L.US.md) - [8634.JP](https://longbridge.com/en/quote/8634.JP.md) - [JPM-K.US](https://longbridge.com/en/quote/JPM-K.US.md) - [JPM-J.US](https://longbridge.com/en/quote/JPM-J.US.md) - [C-R.US](https://longbridge.com/en/quote/C-R.US.md) - [BARC.UK](https://longbridge.com/en/quote/BARC.UK.md) ## Related News & Research - [Markets are stuck in a 'doom loop' misreading Kevin Warsh on inflation: CIO](https://longbridge.com/en/news/294293572.md) - [Warsh's Wall Street cred takes a hit as investors doubt the Fed chair's inflation-fighting resolve](https://longbridge.com/en/news/294404334.md) - [ROI-The bond market isn’t buying what Fed Chair Warsh is selling: McGeever](https://longbridge.com/en/news/294366650.md) - [US June PCE Inflation Cools as Core Gauge Falls to 3.3%, Easing Fed Policy Pressure](https://longbridge.com/en/news/294371330.md) - [Warsh Triggers Market Roller-Coaster As Hawkish Inflation Vow Hits Stocks](https://longbridge.com/en/news/294276414.md)