Wall Street Conspiracy Theory: Did Waller Intentionally Raise Long-Term U.S. Treasury Yields?

There are widespread rumors in the market that Federal Reserve Chairman Waller intentionally raised long-term U.S. Treasury yields during a press conference to tighten financial conditions, a claim that Bank of America Securities directly refuted.

Written by: Zhao Ying, Wall Street Journal

The market is abuzz with speculation that Federal Reserve Chairman Waller deliberately used a press conference to raise long-term U.S. Treasury yields to tighten financial conditions. Bank of America Securities clearly disagrees with this assertion, pointing out that this logic does not align with the Federal Reserve's operational framework and is unlikely to gain support from the FOMC.

According to the Wind Trading Desk, Bank of America Securities mentioned in a rate research report released on August 7 that after the July FOMC meeting, long-term U.S. Treasury yields rose significantly, and the inflation breakeven rates widened. Some clients inferred that this was a deliberate action by Waller—arguing that to suppress inflation and counteract loose financial conditions and investment booms, Waller needed to raise long-term rates, with the press conference being a carefully designed tool for this purpose.

Bank of America Securities' rate strategist Mark Cabana and economist Aditya Bhave directly refuted this judgment in the report, stating that other FOMC members would not buy into it either. The sharp rise in long-term rates and the widening of inflation expectations last week served as a reminder of the risks the FOMC faces when operating outside its direct control.

Federal Reserve Policy Framework: The Federal Funds Rate is the Core Tool

The report cites the FOMC's "Statement on Longer-Run Goals and Monetary Policy Strategy," which clearly states that "adjusting the target range for the federal funds rate" is the primary means for the FOMC to adjust its monetary policy stance, and that broader tools will only be employed when the federal funds rate is constrained by its effective lower bound. The statement does not mention long-term U.S. Treasury yields at all. This statement took effect in January 2012 and was reaffirmed in January 2026.

The report emphasizes that Waller does not have the authority to unilaterally change the Federal Reserve's policy implementation approach. If he intends to push for a change in the operational framework, he must gain the overall support of the FOMC, which is not an easy threshold to meet.

Long-Term Rates: Limited Control, Difficult Risks

The report further analyzes why the Federal Reserve adheres to the overnight rate tool from an operational perspective.

The report points out that the Federal Reserve has direct and precise control over the overnight rate, which can be flexibly adjusted through managing rates and reserve flows, with a wealth of historical operational experience and relatively controllable rate fluctuations. Its limitation lies in the fact that the transmission to long-term rates depends on market expectations of future policy paths, and the Federal Reserve can only exert indirect influence through communication and forward guidance.

In contrast, the Federal Reserve's direct influence over long-term rates is extremely limited—unless it employs large-scale asset purchase programs (LSAPs). Other influences on long-term rates are indirect, primarily transmitted through policy expectations or term premiums. The report specifically notes that term premiums are difficult to control precisely, posing a risk of overshooting, and once out of control, the volatility could be significant.

FOMC Will Not Easily Abandon Controllable Tools

The sharp rise in long-term rates last week itself serves as a warning signal, making the FOMC acutely aware of the potential costs of operating outside its direct control. The report concludes that the FOMC is unlikely to be enthusiastic about supporting such policy tools that have limited empirical backing and insufficient validation.

Bank of America's final conclusion is clear and concise: Waller cannot unilaterally change the FOMC's operational practices, and the FOMC is likely to continue using the overnight rate as its core policy tool. The so-called "four-dimensional chess" theory of long-term rate manipulation is merely an overinterpretation by the market.