Fed Commentary Shifts Rate Expectations
This morning, New York Fed President John Williams signaled that the Fed may need to cut rates in the near term, noting that labor-market weakness now poses a greater risk than inflation. “Near term” is doing a lot of heavy lifting here—it’s a clear indication he would support a cut at the December 10 meeting.
Markets reacted instantly. Rate-cut odds jumped from 33% to 74% following his remarks, lifting both Stocks and Bonds.
Yesterday, Boston Fed President and voting member Susan Collins offered a contrasting view. She prefers to pause in December due to inflation remaining above the Fed’s 2% target. Collins said she would consider a cut if the labor market softened “materially,” but she does not believe that has happened.
However, the data tells a different story:
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Since April 2023, unemployment has risen from 3.4% to 4.44%—a 30% increase.
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Since January, it has climbed from 4.0% to 4.4%.
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Since June, the rate has increased three months in a row.
Collins is focused on Initial Jobless Claims, which remain low. But the more telling metric is Continuing Claims, now just under 2 million, the highest since 2021—signaling that once someone loses a job, it’s becoming much harder to find a new one.
Chicago Fed President Austan Goolsbee, also a voter, added more division to the mix. Once the most dovish member on the committee—openly talking about sizable cuts before reaching neutral—he’s now uneasy about “front-loading” cuts. He believes the overall economy remains relatively strong and, despite softening labor data, is focused primarily on inflation. He expects cuts eventually, but not in December.
Where the Voting Members Stand for December 10
Team Cut
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Miran, Governor
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Waller, Governor
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Bowman, Governor
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Williams, New York
Team Pause
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Schmid, Kansas City
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Collins, Boston
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Goolsbee, Chicago
Undeclared (but leaning toward pause)
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Powell, Chair
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Cook, Governor
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Barr, Governor
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Jefferson, Governor
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Musalem, St. Louis