Topline
The probability of an interest rate cut next month doubled on Friday, after New York Federal Reserve President John Williams said he sees room for a reduction in the “near term,” raising prospects among investors as waning hopes have pulled down stocks in recent days.
Other Federal Reserve officials have supported maintaining the current rates.
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Key Facts
“I still see room for a further adjustment [to interest rates] in the near term” to adjust U.S. monetary policy to “the range of neutral,” said Williams in prepared remarks Friday at a conference hosted by the Central Bank of Chile.
Since Williams’ speech, markets have priced in odds of 75.1% for a 25-basis-point cut to interest rates to a range of 3.5% to 3.75%, after the probability dropped below 40% on Thursday, according to CME’s FedWatch tool.
Williams said he believed the risks of a cooling labor market had increased, while the risks of inflation had “lessened somewhat,” adding it was still “imperative” to lower inflation to the Fed’s 2% target.
The Federal Reserve lowered interest rates by a quarter-point to between 3.75% and 4% in October, though Fed Chair Jerome Powell said that further reductions to rates were “not a foregone conclusion” at the central bank’s policymaking panel in December, noting officials had conveyed “strongly differing views” about how to proceed.
Crucial Quote
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” Williams said. “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.”