New York Fed President John Williams has indicated that there is potential for “further adjustment” to interest rates in the near term, leading traders to increase their expectations for a quarter-point cut during the Federal Reserve’s December meeting. During a speech at a conference in Santiago, Chile, Williams emphasized that weaknesses in the labor market present a greater threat than inflation, thereby leaving the possibility open for a rate decrease despite mixed economic signals from recent job data.
Williams described the current monetary policy stance as “modestly restrictive” but noted it is “somewhat less so” than it was before the latest changes. He suggested that adjusting the federal funds rate target range could align policy more closely with neutral levels, striking a balance between the Fed’s dual goals of maximizing employment and stabilizing prices.
Following Williams’ remarks, the Dow Jones Industrial Average surged by 493 points, or 1%, with the likelihood of a rate cut rising sharply to 72% from 39% just a day prior, as reported by CME FedWatch.
In contrast to Williams’ outlook, other Fed officials expressed a range of opinions regarding interest rates. Dallas Fed President Lorie Logan advocated for maintaining current rates for an extended period, while Boston Fed President Susan Collins expressed hesitance about the next move, suggesting that a restrictive policy remains suitable at this time. On the other hand, Fed Governor Stephen Miran voiced his support for a quarter-point cut, asserting a willingness to vote for such a move if it leads to lower rates, despite dissenting in previous meetings for more significant cuts.
Philadelphia Fed President Anna Paulson took a cautious stance toward the upcoming December meeting, admitting she was more concerned about labor market challenges than inflation. She highlighted that each rate cut brings monetary policy closer to neutral, indicating that the path for further cuts becomes progressively steeper.
In the first notable batch of economic data since the government shutdown, employers added 119,000 jobs in September, a figure significantly above expectations of 50,000, as reported by the Bureau of Labor Statistics. However, the unemployment rate concurrently rose to 4.4%, marking the highest level since October 2021.
Responses to the mixed job data have led to divided opinions among global brokerages about the implications for December’s interest rate decision. Institutions like JPMorgan, Standard Chartered, and Morgan Stanley retracted their forecasts for a rate cut, suggesting that the strong job growth might compel officials to keep rates steady, especially as further labor market data won’t be available until December.
Standard Chartered emphasized that the lack of November labor data could hinder those favoring a cut from making a strong case. In contrast, Deutsche Bank, Citigroup, Wells Fargo, and BNP Paribas maintained their predictions for a quarter-point reduction, arguing that the recent rise in unemployment supports the case for easing policy.
Despite the better-than-expected job growth, analysts cautioned that the employment update primarily reflects past conditions, suggesting it may not significantly influence Fed officials’ decisions. Furthermore, about 100,000 federal workers are expected to leave payrolls in October, potentially impacting job data; however, that month’s figures will be partially released in December.
Williams articulated that while there are increasing downside risks to employment as the labor market cools, the upside risks to inflation seem to have diminished. He acknowledged that progress in combating inflation has stalled, attributing some persistent pressures to tariffs enacted during the previous administration.
On a broader economic scale, Paulson highlighted that while job growth has been robust, it has primarily been concentrated in stable sectors such as healthcare, a trend she noted often precedes an economic slowdown. She mentioned varied consumer spending patterns, with higher-income households continuing to spend while lower-income families face constraints. Notably, she observed shifting consumer behaviors, evidenced by the sale of smaller, less expensive packages of candy in the lead-up to Halloween, contrasting with the ongoing demand for premium chocolate products.
