Fed Officials Signal Divergent Views on December Rate Cut
New York Fed President Williams' dovish tone fuels market rally, overshadowing cautious remarks from regional bank heads and mixed economic data.
Wall Street is increasingly betting on a December interest rate cut, with market sentiment buoyed by dovish commentary from a key Federal Reserve official, despite warnings from other policymakers to remain patient.
New York Fed President John Williams ignited investor optimism Friday, stating the central bank may need to make an "adjustment in the near term" to its policy stance. His remarks, delivered at an Economic Club of New York event, were interpreted as a strong signal that the Fed is preparing to pivot from its restrictive monetary policy. Following his comments, the probability of a rate cut at the Fed's December meeting surged to nearly 70%, according to market pricing, fueling a broad rally that sent the S&P 500 up over 1%.
This dovish tilt from the influential vice chair of the Federal Open Market Committee (FOMC) directly contrasts with a more cautious tone struck by other regional Fed presidents. Earlier in the week, Boston Fed President Susan Collins told The Wall Street Journal there was “no urgency” for a December rate cut, emphasizing a data-dependent and patient approach.
Echoing that sentiment, Dallas Fed President Lorie Logan expressed a preference for holding rates steady, noting that inflation remains elevated and is likely to exceed the central bank's 2% target for some time. In a speech on the challenges for monetary policy, Logan highlighted the risks of easing policy prematurely.
The conflicting signals from Fed leadership underscore a growing debate within the central bank as it navigates a complex economic landscape. The latest labor market data presents a mixed picture that both doves and hawks can point to. The economy added a modest 119,000 jobs in September, suggesting a cooling that could warrant looser policy. However, the unemployment rate ticked up to 4.4%, its highest level since October 2021, complicating the outlook.
For now, investors appear to be siding with Williams, whose permanent voting seat on the FOMC gives his words significant weight. The market's enthusiastic response suggests a strong desire for policy easing to support economic growth and asset prices heading into year-end. However, the divergence of opinion among policymakers indicates that a December cut is far from guaranteed, and upcoming inflation reports will be critical in shaping the final decision.