Fed's Waller: Safe-asset supply and demand not changed much over the last 5 years

Fed's Waller: Safe-asset supply and demand not changed much over the last 5 years

Fed’s Waller: Safe-Asset Supply and Demand Remain Stable Amid Economic Shifts

Federal Reserve Governor Christopher Waller recently emphasized that the supply and demand dynamics for safe assets, such as U.S. Treasury securities, have remained largely unchanged over the past five years despite significant economic and policy shifts. His remarks, delivered during a speech on the U.S. economic outlook, underscored the resilience of markets for risk-free assets even amid prolonged inflation, fiscal challenges, and monetary policy adjustments.

Waller highlighted that while inflation has exceeded the Fed's 2% target for much of the period, medium- and long-term inflation expectations have remained well-anchored, a factor that has stabilized demand for safe assets. He noted that underlying inflation, adjusted for one-time effects like tariffs, is now closer to the Fed's target, reducing uncertainty for investors seeking safe-haven returns. Additionally, the labor market's gradual weakening—marked by stalled job growth and rising corporate layoffs— has not disrupted the fundamental balance between safe-asset supply and demand.

On the supply side, U.S. Treasury borrowing needs have grown due to rising deficits, but the structure of issuance has shifted toward shorter-term bills to mitigate refinancing costs amid high interest rates. This strategy, while increasing rollover risks, has not fundamentally altered the overall supply of safe assets. Waller's speech suggested that the Fed views these developments as manageable, with policymakers confident that market participants continue to price in risks without destabilizing demand for Treasuries.

The Fed's cautious approach to rate cuts— keeping policy "well positioned" as of January 2026—reflects its assessment that safe-asset markets remain resilient. While the central bank anticipates eventual rate reductions as inflation eases, it has not signaled concerns about structural shifts in safe-asset dynamics. This stability, however, could face tests if fiscal pressures intensify or if prolonged high interest rates disrupt Treasury issuance strategies.

For investors, Waller's analysis suggests that safe-asset markets will likely remain a cornerstone of portfolio strategies, with demand supported by institutional preferences and the Fed's inflation-control credibility. Yet, evolving fiscal policies and potential shifts in monetary easing timelines warrant continued monitoring(https://www.lpl.com/research/weekly-market-commentary/dueling-mandates-feds-policy-caution-treasurys-growing-borrowing-needs.html).

Source: Federal Reserve Governor Christopher Waller, November 2025 speech.
Source: LPL Financial, February 2026 market commentary.