WASHINGTON: The U.S. Federal Reserve can still cut interest rates “in the near term” without putting its inflation goal at risk, New York Fed president John Williams said on Friday in comments that prompted traders to rapidly shift bets back in favor of a December rate reduction.
“I view monetary policy as being modestly restrictive…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 said in comments prepared for delivery at a Central Bank of Chile event.
Following his comments investors shifted pricing on contracts tied to the Fed’s benchmark interest rate to reflect a nearly 60% chance of a quarter point cut at the Dec. 9-10 meeting, reversing what had been strong conviction that the Fed would pause at its next meeting due to concerns about inflation.
Though progress on inflation has “temporarily stalled” with prices rising well above the Fed’s 2% target, Williams said he expected price pressures to ease as the impact of tariffs passes through the economy. Meanwhile the job market appears to be softening, with the unemployment rate rising in September to a 4.4% level comparable to the pre-pandemic years “when the labor market was not overheated,” he said.
The Fed needs to reach its inflation target “without creating undue risks to our maximum employment goal,” Williams said.
His comments come amid debate about whether the Fed should cut rates in December, with some other regional bank presidents drawing a hard line against further rate cuts until it is clear that inflation will drop to the Fed’s 2% target from its current, still-elevated level.
The New York Fed president, however, holds a permanent voting position on the rate-setting Federal Open Market Committee and serves as its vice-chair, a leadership position that adds further weight to his comments about monetary policy.
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