Odds for another interest rate cut surged after New York Federal Reserve President John Williams hinted at his support for a potential reduction when the Fed convenes in December. Speaking in Chile, Williams noted, “I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral.” His remarks suggest a willingness to reconsider monetary policy amid current economic conditions.
Despite his openness to a rate cut, Williams highlighted the impact of tariffs on inflation, estimating that they add between 0.5 to 0.75 percentage points to current inflation levels. He expects inflation to gradually decrease over the next year, suggesting that while immediate cuts may be warranted, the broader economic landscape still requires careful navigation.
As vice chairman of the Federal Open Market Committee and part of an influential leadership trio alongside Fed Chair Jerome Powell and Vice Chair Philip Jefferson, Williams’ comments resonate strongly within financial markets. The likelihood of a rate cut in December has now risen to over 75%, a notable increase from the previous estimates of 30-40%.
Adding to the conversation, Fed Governor Stephen Miran expressed his support for a 25 basis point cut rather than a more aggressive 50 basis point reduction. Miran has been distinct in his approach on the board, advocating for substantial cuts amidst calls from others to maintain rates.
The backdrop to these discussions is a recently released jobs report indicating stronger-than-expected payroll growth in September, with 119,000 jobs added against projections of just 51,000. However, despite this rebound, the unemployment rate increased to 4.4% from 4.3%. Some analysts suggest that the rise in the labor participation rate may reflect more individuals re-entering the job market.
Miran indicated that the jobs report might sway undecided Fed officials toward a rate cut. He emphasized the dovish implications of the data, pointing to rising unemployment and increased permanent layoffs as signs that the labor market is feeling the effects of restrictive Fed policies. He argued that the current economic climate doesn’t necessitate maintaining a tight monetary stance.
Conversely, Boston Fed President Susan Collins, a voting member for the upcoming meeting, indicated a preference to maintain the current policy. She cited strong demand in the economy and concerns about inflation as reasons to uphold a “mildly restrictive” policy. Collins believes that a gradual approach is essential for ensuring sustained disinflation, stating, “Doing so cautiously, gradually is appropriate, and I’m hesitant to get too far out ahead.”
In a broader context, Dallas Fed President Lorie Logan signaled that further cuts would be contingent on significant shifts in inflation or employment data. Meanwhile, Philadelphia Fed President Anna Paulson expressed a cautious stance toward the next meeting, acknowledging that prior cuts have made any upcoming decisions increasingly critical.
Philip Jefferson, another member of the troika, acknowledged heightened risks to employment relative to inflation, advocating for a slow approach to potential rate cuts. The Federal Reserve’s next policy meeting is set for December 9-10, marking a pivotal point for monetary policy ahead of the new year.
