Fed's John Williams says he sees room for rat ecut in 'near term'

Federal Reserve Bank of New York President John Williams said he sees room to lower interest rates again in the near term as the labour market softens, reviving investor expectations for a December rate cut.

In the text of a speech he delivered Friday (November 21) in Santiago, Chile, Williams said downside risks to employment have increased while upside risks to inflation have eased. Investors boosted the odds of a rate cut at the Fed’s December 9-10 policy meeting to around 70% after his comments, according to pricing in futures contracts, up from around 35% earlier.

"I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” he said. “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."

The remarks by Williams suggest another rate cut this year remains a possibility as Fed Chair Jerome Powell tries to forge a consensus among a fractured group of policymakers in time for their upcoming gathering in Washington.

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The president of the New York Fed has historically been closely aligned with the Fed’s chair. Powell, who last spoke at a press conference following the Fed’s October 29 decision, isn’t scheduled to speak publicly again before the next meeting.

"At a minimum, Williams’s intervention signals that the Fed leadership has not given up on a cut,” Evercore ISI economists led by Krishna Guha said in a note. “But we think it is reasonable – though not certain – to read it as more than that."

Following a second consecutive rate cut in October, a number of officials voiced their opposition to, or uncertainty over, supporting a third move in December. Two policymakers continued that trend on Friday.

"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 labour market will cool more rapidly,” Dallas Fed President Lorie Logan said at an event in Zurich.

Speaking in an interview with Bloomberg’s Odd Lots podcast that was recorded on Wednesday and released on Friday, Boston Fed President Susan Collins signalled that holding rates steady would be “appropriate for now.” She echoed her remarks on CNBC Friday, saying the release of September labour market data this week didn’t significantly change her views.

Also Read: US Fed minutes show ‘many’ officials lean against December cut

"My assessment is that the downside risks to employment have increased as the labour market has cooled, while the upside risks to inflation have lessened somewhat,” Williams said in his speech. “Underlying inflation continues to trend downward, absent any evidence of second-round effects emanating from tariffs."

The president of the New York Fed said that trade tariffs have likely contributed about one-half to three-quarters of a percentage point to the current inflation rate, though he added that he doesn’t see tariffs fueling any second-round or other spillover effects on prices.

Consumer sentiment fell in November to one of the lowest levels on record as Americans’ views of their personal finances soured, according to a University of Michigan index released Friday. The report showed consumers remain anxious about the high cost of living and job security. The consumer price index rose 3% in the year through September, contributing to worries among some officials.

While Williams said the central bank must return inflation to its 2% target, it needs to do so without inflicting deeper pain on the labour market. "Looking ahead, it is imperative to restore inflation to our 2% longer-run goal on a sustained basis. It is equally important to do so without creating undue risks to our maximum employment goal," he said.

The New York Fed chief added that tariffs will continue boosting prices through next year, but that he expects inflation will get back on track toward 2% in 2027.

Also Read: Why gold is range-bound ahead of the US Fed meeting and US payrolls report

In a question-and-answer session after his speech, Williams said he expects fiscal policy will boost growth next year, though he cautioned there are countervailing pressures from immigration and tariff policies, and that growth will likely be around its trend rate. "The balance isn’t significantly to one side or the other," he said.