With little in the way of government economic statistics, comments from Fed speakers have taken on more weight, and Bank of America found little in the recent chatter to suggest the central bank will not pursue rate cuts at its final two meetings in 2025.
New York Fed President John Williams, a key voice on monetary policy and often aligned with Chairman Jerome Powell, has changed his tone slightly, the report found. In a recent interview with The New York Times, Williams expressed increased concern about the worsening labor market and said he supports bringing interest rates back to a “neutral” level that is typically seen as neither stimulating nor slowing the economy. That’s a notable departure from earlier caution about the pace of rate cuts, BofA said.
Still, the way forward is not unanimous. Governor Michael Barr surprised analysts with a hawkish speech on Thursday, warning against complacency on inflation and suggesting he expects a cut at most. Regional Fed presidents such as Chicago’s Austan Goolsbee and St. Louis’s Alberto Musalem also remains cautious, worried that premature cuts could reignite inflationary pressures.
Coupled with comments from Powell and others, however, there appears to be growing momentum at the Fed for continued easing after the September 25 rate cut. The Fed’s next meeting is on 28-29 October, and the last political gathering of the year will be on 9-10 December.
Despite the government shutdown, the Bureau of Labor Statistics still plans to release the September Consumer Price Index report next week, so there will be at least one piece of key data that could influence policymakers.
For their part, interest rate traders have for some time priced in a near certainty of 25 basis point rate cuts at both the October and December Fed meetings. In fact, recent market jitters have prompted some traders to place bets on a 50 basis point rate cut at one of these meetings. According to CME FedWatch, there is an 8% chance of 75 basis points of interest rate cuts by the end of the year.
