Wall Street Rallies as Fed's Waller Opens Door to Holding Rates Steady, Even as Oil Tops $95 on Iran Fighting

Since U.S. airstrikes on Iran sent oil above $95 a barrel on Tuesday, September 1, and pushed Treasury yields to multi-decade highs, Wall Street had been on edge about whether the Federal Reserve would hike rates again this month. Thursday brought a partial reprieve.

Federal Reserve Governor Christopher Waller said he'd be "inclined to support" holding interest rates steady this month if incoming data confirms inflation is cooling, according to CNBC. He added that his final call will be "heavily influenced" by the August inflation report due next week, per Bloomberg, and warned separately that rates may still need to rise if that data shows price pressures aren't fading, according to Ground News' aggregation of the comments.

Traders took the softer tone and ran with it. Bets that the Fed will hike rates when it meets later this month fell to 50.4% from 63.2% a day earlier, according to the CME FedWatch tool cited by CNBC.

Markets React

The Dow Jones Industrial Average climbed 624 points, or 1.2%, on pace for its best day since August 4, according to CNBC. The S&P 500 was up 1.2% by the afternoon, after an earlier Bloomberg snapshot at 12:22 p.m. New York time had it up 1%. The Nasdaq Composite gained 1.6% on CNBC's numbers, though it had opened the session up a more modest 0.45%, according to Ground News.

The 10-year Treasury yield fell back to around 4.76% after touching its highest level since November 2023 on Wednesday, CNBC reported. A 2% rally in the Japanese yen against the dollar also helped pull yields down, the network noted. Gold jumped more than 2% on the reduced rate-hike odds, according to the Economic Times' live coverage.

None of this erased the pressure building elsewhere. The average 30-year fixed mortgage rate climbed to its highest level in more than a year, the Economic Times reported, citing Reuters, a fresh hit to already-stretched homebuyers. West Texas Intermediate crude traded above $91 a barrel and Brent above $95, CNBC reported, with the escalation between the U.S. and Iran, including strikes on two oil tankers near the Strait of Hormuz, driving what analyst Daniela Hathorn called an "inflationary headache," according to Ground News.

The Fed's Own Split Screen

The rally came with a political subplot. Vice President JD Vance said Thursday the Fed should cut interest rates to make homes more affordable, according to CNBC, adding to pressure President Trump has put on the central bank to lower borrowing costs.

That call sits awkwardly next to Trump's own pick for Fed chair. Kevin Warsh recently hinted at doing the opposite, floating the idea of hiking rates to address persistently high inflation, CNBC reported. CFRA Research's Sam Stovall told the network that Warsh "has told us that he's focused on inflation [more] than on payrolls," meaning a weak jobs report Friday probably won't change his thinking, while a strong one could reinforce his inflation concerns.

A reasonable case for holding rates steady, or even cutting, exists: elevated mortgage rates and borrowing costs are squeezing households, and Waller's own comments suggest underlying inflation trends may be improving. But Stovall's point stands as a genuine counterweight. With oil near $95 a barrel and yields only recently off multi-decade highs, "you can't really say that the all-clear has been signaled," he told CNBC.

Single Stocks Moved on Earnings, Not Just the Fed

Snowflake shares surged 21%, their best day since late May, after beating second-quarter earnings and revenue estimates and raising full-year guidance, according to Bloomberg and CNBC. Hewlett Packard Enterprise fell 5%, its worst day since late July, after sales grew but missed elevated investor expectations, Bloomberg reported.

Broadcom's results drew conflicting magnitude in coverage: Bloomberg and Moneycontrol reported shares fell 4.1% on an underwhelming forecast, while CNBC put the drop at 2%. Both cited the same cause, a disappointing fiscal fourth-quarter revenue outlook, even as Broadcom predicted an AI chip sales boom over the next two years.

Nvidia rose 1.3% after agreeing to acquire AI startup Hugging Face in a deal valued at roughly $13 billion, according to Bloomberg, one more sign the AI infrastructure spending cycle isn't slowing regardless of what the Fed does next.

Friday's August jobs report is the next data point that could move the needle. A weak number probably won't sway Warsh, per Stovall's read, but a hot one could sharpen the disagreement between the vice president pushing for cuts and the Fed chair signaling he's still worried about inflation.