After weeks in which the Federal Reserve's policymakers have seemed more divided over interest rate policy than they've been in years, Friday brought the clearest hint yet that a rate cut is on the way 19 days from now.
Why it matters: New York Fed president John Williams' words in a speech Friday only make sense if the central bank's inner circle of leadership has decided that they think another interest rate cut is justified at the December 9-10 meeting, and are confident they'll have the votes to make it happen.
Driving the news: "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," Williams said at the Central Bank of Chile Centennial Conference.
- That was enough to send rate cut expectations — and the stock market and other risky assets — soaring.
- The CME Fedwatch tool put 73% odds on a December rate cut after Williams' speech, up from 39% Thursday.
- The S&P 500 was up 0.4% as of 10am ET Friday, and Treasuries rallied on expectations of lower rates.
Between the lines: The New York Fed president traditionally is part of a leadership triumvirate at the central bank, along with the chair and vice chair of the Board of Governors.
- Williams is vice chair of the interest rate-setting Federal Open Market Committee, has a permanent vote on monetary policy, and his bank is the one that executes policy.
- As such, it would be highly unusual for the New York Fed chief to offer guidance about the direction of rates policy — especially at such a fraught time, and particularly in prepared remarks — without it being the consensus view of leadership.
Of note: We also see evidence that some of Williams's FOMC colleagues are looking to turn down the temperature on what has been a messy period for central bank communications.
- "I believe rates will settle at some place that's well below where it is right now," Chicago Fed president Austan Goolsbee said in a press roundtable Thursday. "And I still think that. My unease is about the short-run front-loading too many rate cuts," in light of recent inflation.
- "I'm trying to come with an independent monetary view, informed by the folks I talk to in my district. ... I don't find it that disturbing if, at moments of potential transition, we have honest disagreements, and some people vote one way or vote the other way."
The other side: Dallas Fed president Lorie Logan, who previously ran the markets division under Williams at the New York Fed and is a voting member of the committee next year, laid out the case for the hawks in a separate speech.
- "[W]ith two rate cuts now in place, I'd find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly," Logan said Friday in Zurich.
