New York Federal Reserve President John Williams said Friday he expects the central bank can lower its key interest rate from here as labor market weakness poses a bigger economic threat than higher inflation.
With divisions in the central bank running high over the future of rates, Williams took the side of the doves who still see policy as a bit restrictive when it comes to economic growth.
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” he said in remarks for a speech in Santiago, Chile. “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.”
Williams’ comments helped move financial markets in several ways.
Stock market futures rose further into positive territory while Treasury yields were sharply lower.
At the same time, fed funds futures pricing for the next Fed move also tilted. Traders now see a better than 72% probability of another quarter percentage point reduction at the Dec. 9-10 meeting of the Federal Open Market Committee, and just a 28% chance of no cut, according to the CME Group’s FedWatch gauge. That’s a dramatic flip from where expectations were Thursday at the same time.
Williams’ comments are significant in that he is considered part of a leadership troika that also includes Chair Jerome Powell and Vice Chair Philip Jefferson. Powell has not spoken publicly since the late October FOMC meeting, during which the committee approved a quarter-point, or 25 basis point, reduction.
Other officials weigh in
There are 12 voting members on the FOMC — the seven permanent members from the Board of Governors and a cast of five rotating members from regional banks that always includes the New York Fed president.
In comments to CNBC on Friday morning, Boston Fed President Susan Collins took a different tone from Williams, noting the threat that inflation still poses while saying she would be hesitant to support more cuts. An FOMC voter this year, Collins said last week she would have a “high bar” for supporting further reductions.
“I do think mildly restrictive policy is very appropriate right now. And, you know, and that makes me hesitant as I look forward to think about what the next policy moves should be,” she said during the “Squawk Box” interview.
Collins said she sees “weakness” particularly among lower-income people “and what that really seems tied to is high price levels and that continued inflation, inflation that’s been elevated for nearly five years [and] has a risk of persistence.”
Dallas Fed President Lorie Logan took a sharply different tack, saying she would have opposed the October cut — and possibly September’s as well. Though Logan doesn’t vote this year, she will in 2026. Her comments focused on the need to control inflation, and she added that soaring stock market prices this year have added to her caution about easing.
“With 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 in a speech in Zurich.
“Putting it together, even in September I was not certain we had room to cut rates more than once or twice and still maintain a restrictive stance. And having made two cuts, I’m not certain we have room for more,” she added. “In the absence of clear evidence that justifies further easing, holding rates steady for a time would allow the FOMC to better assess the degree of restriction from current policy.”
Cleveland Fed President Beth Hammack, also a 2026 voter, told CNBC on Thursday she also sees policy as “barely restrictive,” a potential signal to resistance against cutting.
Jefferson spoke Friday morning at a Fed conference in Cleveland, but confined his remarks to the impact that artificial intelligence is having on the economy and financial stability. During a speech last week, Jefferson spoke of “the need to proceed slowly” on further policy decisions.
Fed sentiment has divided along the lines of officials who think policy is still somewhat restrictive, meaning there is more room to lower rates without spiking inflation, and those who view it as not restrictive, with further easing a threat to increase prices particularly in the era of dramatically higher tariffs on U.S. imports.
“My assessment is that the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat,” Williams said. “Underlying inflation continues to trend downward, absent any evidence of second-round effects emanating from tariffs.”
Williams did note, as have many other Fed officials, that progress on inflation “has stalled” due to the impact of tariffs and other factors. However, he noted that longer-run expectations are still in check, giving the Fed latitude as inflation gets back to the central bank’s goal, he projected, by 2027.
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