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Fed rate cut speculation gains momentum
Speculation over a December FOMC rate cut intensifies as Fed Governor Christopher Waller and New York Fed President John Williams emphasize data-dependency. Futures now price a 75% chance of a 25bps cut, but key economic reports, especially the upcoming NFP, could shift expectations.
Fed Governor Waller signals support for a December rate cut, pending data
Futures show a 75% probability of a 25bps cut at the December meeting, up from 66%
Williams advocates moving toward neutral policy over time
Speculation about a December rate cut by the Federal Open Market Committee (FOMC) has surged, following comments from Fed Governor Christopher Waller and New York Fed President John Williams. Market sentiment has shifted, with Fed funds futures now indicating a 75% chance of a 25-basis-point rate cut at the December meeting, up from 66% just yesterday. However, traders remain cautious, as critical data, including Friday’s non-farm payrolls (NFP) report, could sway expectations significantly.
Waller signals support for easing
Fed Governor Christopher Waller expressed tentative support for a rate cut, contingent on economic data confirming a continued decline in inflation toward the 2% target. While Waller stated he "leans toward supporting a cut," he emphasized that unexpected developments could alter his view.
Drawing a vivid analogy, Waller described the Fed's battle against inflation as an "MMA fight," asserting that inflation remains in a "choke hold." Despite inflation "slipping away" at times, Waller assured that "submission is inevitable" and that the Fed will ultimately succeed in bringing inflation under control.
Waller also highlighted broader economic stability as a reason to support easing, noting that even after a cumulative 75 basis points in cuts, monetary policy would remain restrictive. Additional easing, he said, would only lessen the intensity of the Fed's brake on economic activity.
Williams cautions on timing
New York Fed President John Williams struck a more cautious tone, stating that monetary policy should move toward a neutral stance but that timing remains data-dependent. While Williams refrained from explicitly endorsing a December rate cut, he highlighted the inherent uncertainty in economic forecasting.
Despite this cautious outlook, Williams painted an optimistic picture of the U.S. economy, describing it as "in a good place." He forecast economic growth of at least 2.5% for the year and projected that unemployment would stabilize between 4% and 4.25% in the coming months. Inflation, he noted, is expected to end the year at around 2.25%, with no significant upward pressure stemming from labor market dynamics.
