European equities are likely to struggle for momentum at Wednesday’s open, after a Fed official cautioned that a more aggressive monetary policy might be needed next year if inflation readings stay high.

Federal Reserve Gov. Christopher Waller said the central bank could move forward the timeline for raising short-term interest rates to restore price stability if high levels of inflation don’t start cooling soon, adding that he supports the Fed slowing its asset buying stimulus effort starting next month.

“The next several months are critical for assessing whether the high inflation numbers we have seen are transitory,” Waller said. “If monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022.”

Despite the hawkish direction of the remarks, U.S. stocks closed higher, as corporate earnings largely overshadowed worries about inflation and supply-chain disruptions. And Asian markets tracked Wall Street’s advance, with most major benchmarks posting solid gains early Wednesday.

A handful of strong earnings reports have helped calm fears of how badly those headwinds would affect corporate results, said Lamar Villere, portfolio manager at investment firm Villere & Co. “I wouldn’t say the fog has been lifted or the fear is gone, but at least you’ve got some reasonably positive data points,” he said.

Bonds:

U.S. Treasury yields continued to climb in Asia, extending Tuesday’s gains which pushed the yield on the 10-year note back to its highest level since around May.

Investors continued to a respond to a hawkish shift in Fed monetary policy following Christopher Waller’s speech.

Tim Duy, chief U.S. economist at SGH Macro Advisors, said comments from the Fed are moving in an overall hawkish direction. He said it will be important to see if Jerome Powell pushes back on such talk at his upcoming speech on Friday.