New York Fed chief raises expectations of a rate cut.

1 day ago7 min read4 comments

The Federal Reserve's intricate dance with monetary policy took a decisive turn on Friday, as New York Fed President John Williams delivered what markets instantly interpreted as the clearest signal yet that an interest rate cut is imminent at the December 9-10 meeting. In a speech at the Central Bank of Chile Centennial Conference, Williams stated, 'I still see room for 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.' This was not merely a technical observation; for seasoned Fed watchers, this was a cannon shot across the bow. The immediate market reaction was swift and unequivocal.The CME FedWatch tool, a key barometer of trader sentiment, saw the probability of a December rate cut surge to 73%, a dramatic leap from the 39% odds priced in just a day prior. Equities rallied, with the S&P 500 climbing 0.4%, while Treasury prices rose, pushing yields lower in anticipation of cheaper money. The significance of Williams's commentary cannot be overstated, rooted deeply in the Fed's internal power structure.The New York Fed president, alongside the Chair and Vice-Chair of the Board of Governors, forms a core leadership triumvirate. Williams himself holds the vice-chairmanship of the rate-setting Federal Open Market Committee (FOMC), possesses a permanent vote, and his bank is the very institution that executes open market operations.For a figure of such stature to offer such explicit forward guidance, especially during a period of notable internal dissent and in prepared remarks, strongly indicates that a consensus has been forged within the Fed's upper echelons. They have not only concluded that another cut is economically justified but are also confident they possess the necessary votes to push it through.This comes after weeks of public friction among policymakers, a messy communications period that now appears to be settling. We see evidence of this cooling of tensions among other FOMC members.Chicago Fed President Austan Goolsbee, in a roundtable discussion, sought to lower the temperature, affirming his belief that rates will ultimately settle 'well below' current levels while expressing only 'unease' about the timing and pace of cuts. His comments, framing disagreements as 'honest' and part of a 'potential transition,' suggest a concerted effort to present a more unified front to the public.However, the hawkish contingent remains vocal. Dallas Fed President Lorie Logan, a former deputy to Williams and a voting member next year, laid out a starkly different case in Zurich, stating she would 'find it difficult to cut rates again in December' without 'clear evidence' of rapidly cooling inflation or labor market deterioration.This divergence underscores the delicate balancing act the Fed faces: navigating persistent inflationary pressures against growing signs of economic softening and the risk of overtightening. The trajectory of interest rates is the single most powerful lever on the global economy, influencing everything from mortgage rates and corporate borrowing costs to currency valuations and emerging market debt. A December cut, as Williams has now powerfully telegraphed, would represent a significant acceleration in the Fed's pivot away from its restrictive stance, a move with profound implications for Wall Street portfolios, Main Street business plans, and the economic fortunes of nations intertwined with the dollar.

#Federal Reserve

#John Williams

#interest rates

#monetary policy

#stock market

#inflation

#weeks picks news

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