FOMC member joins growing list of central bankers calling for rate cuts

John Williams says it’s “now appropriate to dial down the degree of restrictiveness” of monetary policy
By Sam Bourgi
•
09 September 2024
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New York Federal Reserve Bank President John Williams is the latest central banker to hint at a rate cut later this month.

Williams, who is a member of the Federal Open Market Committee (FOMC), said the Fed had made “significant progress” in cooling inflation without adversely affecting the economy.

“With the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” Williams said in prepared remarks at a conference in New York.

Williams’ comments came around the same time that the government released worse-than-expected jobs data from last month.

According to the Bureau of Labor Statistics, the economy added 142,000 jobs in August, and the unemployment rate edged slightly lower to 4.2%.

A cooling labor market is one reason Williams and other top Fed governors have expedited their timeline for rate cuts.

Last week, San Francisco Fed President Mary Daly said it “would be hard to imagine” anything derailing the central bank’s plan to cut rates in September.

With a September rate cut a near lock, economists are speculating about what comes next.

Wall Street is still betting on jumbo-sized rate cuts

Although several Fed officials dismissed the idea of large rate cuts in September, the markets aren’t entirely convinced.

According to CME Group’s FedWatch Tool, there’s a nearly 50-50 chance that the Fed will lower rates by half a point following its Sept. 17-18 meeting.

A week ago, the likelihood of such a reduction was around 30%.

The Treasury market also signals that Wall Street is ramping up bets for jumbo-sized rate cuts. Since April, two-year Treasury yields, which are sensitive to rate changes, have dropped from 5% to just over 3.5%.

“The market might have been right this time in overestimating how aggressive the Fed is going to be,” said Tony Farren, managing director at Mischler Financial Group, in response to investors’ reaction to the latest nonfarm payrolls report.

Nevertheless, other economists warn that the Fed hasn’t given any indication that it’s gearing up for more aggressive rate cuts.

According to Carl Weinberg, the chief economist at High Frequency Economics, larger rate cuts could be interpreted as a sign of panic and sow panic across the markets.

“We’re not seeing anything that I can imagine, in the data, that’s going to trigger the Fed to do what I would call a panicked 50 basis point rate cut,” said Weinberg.

In Weinberg’s view, the Fed would only consider a more aggressive rate cut if it sees evidence of rising layoffs and a bigger jump in unemployment.

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