The 2 Fed comments that are boosting odds of a December rate cut
Odds for another interest rate cut jumped Friday after New York Fed president John Williams signaled he could support a cut when the central bank meets in December.
“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 in Chile.
Though he still sees room to cut, Williams said he believes tariffs have temporarily stalled progress toward the Fed’s 2% inflation goal. He estimates tariffs are contributing a half a percentage point to three-quarters of a percentage point to inflation. He expects that inflation will come back down over the next year.
Williams’ comments carry added weight because he is the vice chairman of the Federal Open Market Committee and one of what’s unofficially known as the “troika,” the group of leaders at the Fed, including Fed Chair Jerome Powell and vice chair Philip Jefferson.
Also on Friday, Fed governor Stephen Miran said that if he were the marginal vote on whether to cut rates, he would vote for a 25 basis point rate cut instead of the 50 basis point cut he favors. Miran has been an outlier on the board during his short tenure, holding out for jumbo cuts even as some of his colleagues pushed for no cut at all.
John C. Williams, president and CEO of the Federal Reserve Bank of New York, speaks at the Milken Institute’s Global Conference on May 6, 2024, in Beverly Hills, Calif. (Apu Gomes/Getty Images) ·Apu Gomes via Getty Images
Payroll growth bounced back in the month of September with 119,000 jobs added, compared with economists’ expectations for 51,000. The rebound comes after jobs were revised to -4,000 for August from 22,000. That continues a volatile trend where job creation went negative in June, increased in July, decreased again in August, and rebounded again in September.
While payroll growth boomeranged, the unemployment rate rose a tenth of a percentage point to 4.4% from 4.3%. Some have chalked up the increase to more workers coming off the sidelines to look for a job, as the labor force participation rate showed an uptick.
Miran noted that he thought the September jobs report would tip anyone who wasn’t sure whether to cut rates toward doing so.
“The implications of [the jobs report] were obviously dovish, and if anyone was on the fence, I would hope that this would move them in the direction of cutting,” Miran said.
He stressed that the unemployment rate edged up and pointed to other indicators, like an increase in permanent layoffs.
“Those are indications that the labor market has been affected by restrictive Fed policy, and given the outlook for inflation, there’s not really much of a need to be as restrictive as we are,” he said.
Meanwhile, Boston Fed president Susan Collins — a voting member for December — suggested Friday she’s more inclined to hold the line at the next policy meeting, noting that she sees resilient demand in the economy, which could cause companies to pass on higher costs from tariffs to consumers, and that she’s hearing concerns about inflation from contacts in her district.
She thinks the Fed needs to maintain “mildly restrictive” policy now.
“Maintaining mildly restrictive policy is appropriate to ensure that we get that disinflation, and then over time I would absolutely expect to normalize further,” Collins told CNBC in an interview on Friday. “Doing so cautiously, gradually is appropriate, and I’m hesitant to get too far out ahead given the moves we’ve already made and some of the inflation concerns that I hear.”
She told CNBC that the September jobs report didn’t significantly change her view of the picture of the job market and that she’s taking more signals now from weekly unemployment claims, given that the September jobs data is stale.
Dallas Fed president Lorie Logan, who is not a voting member, reiterated Friday that with two rate cuts now in place, she would find it difficult to cut rates again in December unless inflation drops or the job market materially deteriorates.
And Philadelphia Fed president Anna Paulson shared her view for the first time Thursday night, saying that she is approaching the next policy meeting “cautiously.” She said she thought the two rate cuts this fall were “appropriate,” but that “each rate cut raises the bar for the next cut.”
For his part, Jefferson — the third troika member — seemed open to the notion of a cut, saying earlier this week that downside risks to employment have increased compared to upside risks to inflation, but that the central bank should move “slowly” when it comes to cutting rates.
The board meets Dec. 9-10 for its final policy meeting of 2025.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance.
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