Fed Rate Cut Odds For December Nearly Double After NY Fed’s Williams Signals ‘Room For Further Adjustment’

• Williams stated that while it is necessary to bring inflation back to the Federal Reserve’s long-term goal of 2%, it is equally important to do so without creating undue risks to the goal of maximum employment.
• He added that while inflation expectations are well anchored, the downside risks to employment have increased.
• Earlier this month, Fed Governor Stephen Miran called for a minimum of 25 bps cut in December, while noting that a 50 bps cut would be appropriate.

The probability of a Fed interest rate cut in December shot up on Friday after Federal Reserve Bank of New York President John Williams stated that there is room for further adjustment.

According to data from the CME FedWatch tool, there is now a 70.9% probability of a 25 basis point rate cut in December, up from 39.1% a day ago.

What Williams Said

Earlier on Friday, Williams stated that while it is necessary to bring inflation back to the Federal Reserve’s long-term goal of 2%, it is equally important to do so without creating undue risks to the goal of maximum employment.

“Therefore, 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, thereby maintaining the balance between the achievement of our two goals,” he said.

He added that while inflation expectations are well anchored, the downside risks to employment have increased.

Growing Skepticism

The minutes of the Federal Open Market Committee’s (FOMC) October meeting pointed to growing skepticism among Fed officials about the need for a rate cut in December, with “many” participants saying it would be appropriate to keep the policy rate unchanged for the rest of the year.

“In discussing the near-term course of monetary policy, participants expressed strongly differing views about what policy decision would most likely be appropriate at the Committee’s December meeting,” the minutes said.

Earlier this month, Fed Governor Stephen Miran called for a minimum of 25 bps cut in December, while noting that a 50 bps cut would be appropriate.

Meanwhile, U.S. equities were up in Friday’s midday trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.76%, the Invesco QQQ Trust ETF (QQQ) gained 0.40%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 1.02%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bearish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.23% at the time of writing.

Also See: NY Fed's Williams Says Trump Tariffs May Have Added Up To 75 Bps To Inflation, But Sees Room For A Further Cut

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