Top Fed official sees room for "near-term" rate cut
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New York Fed president John Williams speaks at a conference in California last year. Photo: Apu Gomes/Getty Images
New York Fed president John Williams on Friday signaled support for another rate cut "in the near term," an important endorsement as the central bank faces historic division over whether to slash borrowing costs again.
Why it matters: The signal from Williams, who is also vice-chair of the Fed's rate-setting committee, sent the stock market up in early trading and put a December rate cut — all but written-off earlier this week — back on the table.
What they're saying: "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," Williams said in a speech Friday morning at an event hosted by Chile's central bank.
- "Neutral" refers to an interest rate level that neither stimulates nor restricts economic activity.
- "My assessment is that the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat," Williams said.
- "Underlying inflation continues to trend downward, absent any evidence of second-round effects emanating from tariffs," he added
The big picture: Williams' comments come after Fed minutes from its late-October policy meeting revealed a bigger split over the path for rate cuts than previously known.
- Williams said he supported the Fed's previous two rate cuts. But "several" other Fed officials "were against lowering" rates, the minutes showed on Wednesday — though only one voting member dissented in favor of holding rates steady.
- Several officials "indicated that they did not necessarily view another [0.25%] reduction as likely to be appropriate at the December meeting," the minutes showed.
The bottom line: Market odds of a rate cut in December plummeted after those revelations — as well as news that the Bureau of Labor Statistics would cancel the October jobs report due to government shutdown effects, leaving Fed officials in the dark about the labor market's health.
- But financial markets see Williams' comments as a game-changer.
- On Friday, the probability of a December rate cut surged to 75%, according to market-based odds tracked by the CME — up from 40% on Thursday.
