With minimal government economic data available, the remarks from Fed speakers have gained significant weight, and Bank of America found little in the recent discussions that indicated the central bank would halt rate cuts at its last two meetings in 2025.
New York Fed President John Williams, a significant figure in monetary policy often aligned with Chair Jerome Powell, has slightly changed his tone, according to the report. In a recent interview with The New York Times, Williams expressed increased concern over deterioration in the labor market and stated his support for returning interest rates to a “neutral” level, which is generally seen as neither stimulating nor hindering economic growth. This marks a significant shift from his previous caution regarding the pace of rate reductions, BofA noted.
Nonetheless, a consensus is lacking. Governor Michael Barr surprised analysts with a hawkish address on Thursday, cautioning against complacency regarding inflation and suggesting he anticipates only a single rate cut at most. Regional Fed presidents, including Austan Goolsbee from Chicago and Alberto Musalem from St. Louis, also exhibit caution, fearing that untimely cuts could reignite inflationary pressures.
When considered along with comments from Powell and others, there seems to be increasing momentum within the Fed for further easing following the September 25 basis point cut. The Fed’s upcoming meeting is scheduled for Oct. 28-29, with the year’s final policy assembly taking place on Dec. 9-10.
Despite the ongoing government shutdown, the Bureau of Labor Statistics intends to publish the September Consumer Price Index report next week, ensuring at least one crucial piece of data that could influence policymakers.
Interest rate traders have for some time factored in a near certainty of 25 basis point rate cuts at both the October and December Fed meetings. In fact, recent market fluctuations have led some traders to speculate on a 50 basis point reduction at one of those meetings. According to CME FedWatch, there is an 8% probability of 75 basis points of rate cuts by year-end.
