The Fed's most well-known dove just turned hawkish.
He did it the same morning a new Fed chair was being sworn in. The market noticed within minutes.
Fed Governor Christopher Waller spent the last year arguing for lower interest rates. So it mattered when he changed his tune at an economic forum in Germany on Friday.
He said the central bank should drop the "easing bias" from its policy statement. That is the line that hints rate cuts are coming next, and Waller wants it gone.
Waller did not call for a hike outright. He just said cuts should no longer be the assumption, and warned that talking about cutting rates with inflation this hot is "crazy."
The Fed's preferred inflation gauge hit 3.8% in April. That is almost double the central bank's 2% target.
That math gets less comfortable for the Fed every month.
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Before Waller spoke, traders had already given up on near-term rate cuts. They were pricing in an initial Fed hike, but not until December.
By Friday afternoon those bets had moved up. Pricing showed about a two-in-three chance of a quarter-point hike by the Fed's October meeting. Odds were close to even for the September meeting.
Pricing in a hike at all is a different world than pricing in cuts. It changes the math for stocks, bonds, mortgages and savings rates.
Three Fed officials already dissented at the April meeting in favor of removing the easing bias then. Waller's comments suggest the hawkish camp is growing.
Kevin Warsh was sworn in as the new Fed chair an hour after Waller's remarks. President Trump picked him after publicly calling for big rate cuts.
Warsh's first policy statement comes at the June 16-17 meeting. He may walk into the room with more support for a hawkish turn than a dovish one.
The Fed's April minutes already showed a growing number of officials saying hikes may be needed if inflation keeps spreading beyond oil and import taxes.
Waller said he is watching inflation expectations in the two-to-four-year range most closely. He warned that any move higher there would be "alarming," because it would echo the kind of drift the Fed missed in 2021 and 2022.
He also pointed to a steadier job market as part of his reasoning. The job picture has stabilized in a way that takes pressure off the Fed to cut just to support hiring.
Traders pulled back on rate-cut bets Friday right after Waller spoke.
The new chair was supposed to deliver cuts.
The data says otherwise.
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