The stock market surged on September 4 as investors responded to signals that the Federal Reserve may hold interest rates steady at its next meeting, citing signs that inflation is finally easing. The S&P 500 rose 1.06% to close at 7,747.71, while the tech-heavy Nasdaq Composite climbed 1.4% to 26,584.06, driven largely by a shift in Fed expectations following comments from Federal Reserve Governor Christopher Waller the previous day.
Waller’s remarks on September 3 proved pivotal for market sentiment. He said that recent inflation data “suggest we are finally seeing some signs of disinflation,” according to CNBC, and indicated he would support holding the federal funds rate at its current 3.5%-3.75% range if the trend continues. His comments triggered an immediate decline in Treasury yields across the curve: the 10-year yield fell more than 2 basis points to 4.772%, the 2-year fell more than 4 basis points to 4.342%, and the 30-year dropped more than 1 basis point to 5.254%.
The market reaction reflects a significant shift in rate expectations. Prediction markets now price a 57% to 60% probability that the Fed will hold rates steady at its September 15-16 policy meeting, up from earlier expectations of a potential rate hike. Waller acknowledged that inflation remains “meaningfully above” the Fed’s 2% target but conveyed confidence that disinflation is taking hold, a message that eased concerns about aggressive tightening.
This market move follows a volatile period in which Treasury yields had climbed to multi-year highs amid persistent inflation concerns and geopolitical tensions, particularly rising oil prices from Middle East escalations. The bond market had been pricing in the possibility of Fed rate increases through the end of 2026, but Waller’s signal suggested the central bank is taking a more patient stance as inflation data improves. The decline in yields typically benefits equities by lowering borrowing costs and making stocks more attractive relative to bonds.
Investors were also awaiting the August nonfarm payroll report, due to be released on Friday, which could further shape Fed expectations. The labor market remains a key variable in the Fed’s calculus, as a strong jobs picture could complicate efforts to bring inflation down without tightening too aggressively. Waller’s comment that incoming data over the next two weeks would be decisive underscored the central bank’s data-dependent approach heading into the September meeting.
Sources
- CNBC — S&P 500 and Nasdaq gains on September 4, 2026, and Treasury yields fall after Waller signals rate hold
- Federal Reserve — Official monetary policy rates and FOMC meeting schedule
- Prediction markets — Fed rate hold probability at 57-60% for September meeting
