With very few government economic statistics, comments from Fed spokespeople have taken on greater importance, and Bank of America found little in recent conversations to suggest the central bank will not continue rate cuts at its final two meetings in 2025.
New York Federal Reserve President John Williams, a key voice on monetary policy and often aligned with Chairman Jerome Powell, has changed his tone somewhat, according to the report. In a recent interview with The New York Times, Williams expressed further concern about the deteriorating labor market and said he supports returning interest rates to a “neutral” level, which is typically considered neither stimulating nor slowing the economy. This marks a notable change from previous caution about the pace of rate cuts, BofA said.
Still, the way forward is not unanimous. 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, such as Austan Goolsbee of Chicago and Alberto Musalem of St. Louis, also remain cautious, worried that premature cuts could reignite inflationary pressures.
However, taken together with comments from Powell and others, there appears to be growing momentum within the Fed to continue easing following the September 25 interest rate cut. The next Federal Reserve 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 Consumer Price Index report for September next week, so there will be at least one key piece of data that could sway policymakers.
For their part, interest rate traders have for some time been pricing in a near certainty of 25 basis point rate cuts at the Federal Reserve meetings in October and December. In fact, recent market tremors have led some traders to bet on a 50 basis point rate cut at one of those meetings. According to CME FedWatch, there is an 8% chance of 75 basis point rate cuts by the end of the year.
