With very few government economic statistics, comments from Fed speakers have taken on greater importance, and Bank of America has found little in recent discussions to suggest the central bank will not continue rate cuts at its final two meetings of 2025.
New York Fed President John Williams, a key voice on monetary policy and often aligned with Chairman Jerome Powell, changed his tone slightly, according to the report. In a recent interview with The New York Times, Williams expressed increased concern about the deteriorating labor market and said he supports returning interest rates to a “neutral” level, generally seen as neither boosting nor slowing the economy. This represents a notable change from previous caution regarding the pace of rate cuts, BofA said.
However, there is no unanimous agreement on the path forward. Gov. Michael Barr surprised analysts with a hawkish speech Thursday, warning against complacency on inflation and suggesting he expects only one cut at most. Regional Fed presidents, like Austan Goolsbee of Chicago and Alberto Musalem of St. Louis, also remain cautious, fearing that premature cuts could reignite inflationary pressures.
However, adding to comments from Powell and others, there appears to be growing momentum within the Fed for continued easing following the September 25 interest rate cut. The next Fed meeting will be on October 28-29 and the last policy meeting of the year will be on December 9-10.
Despite the government shutdown, the Bureau of Labor Statistics still plans to release the September Consumer Price Index report next week. There will therefore be at least one key piece of data that could influence political decision-makers.
For their part, interest rate traders have for some time priced in a near certainty of 25 basis point rate cuts at the October and December Fed meetings. In fact, recent market tremors have some traders betting on a 50 basis point rate cut at one of these meetings. According to CME FedWatch, there is an 8% chance that rates will fall by 75 basis points by the end of the year.
