Expectations for a US interest rate cut in December have risen sharply after comments from Federal Reserve Bank of New York President John Williams. In a speech delivered in Santiago, Chile, Williams indicated that there is room to lower interest rates in the near term as the labour market softens. This statement has revived investor expectations for a rate cut at the Federal Reserve’s upcoming policy meeting.
Williams noted that downside risks to employment have increased, while upside risks to inflation have eased. According to pricing in futures contracts, investors have boosted the odds of a rate cut at the Fed’s December 9-10 policy meeting to approximately 70 per cent, a significant increase from around 35 per cent earlier. Williams stated that he views monetary policy as being modestly restrictive.
“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. These remarks suggest that another rate cut this year remains a distinct possibility.
The comments come as Fed Chair Jerome Powell aims to build consensus among policymakers before their next gathering in Washington. As president of the New York Fed, Williams has historically maintained a close alignment with the Fed chair. Powell, who last spoke publicly after the Fed’s October 29 decision, is not scheduled to make any further public statements before the next meeting.
