:max_bytes(150000):strip_icc()/GettyImages-2233025951-82f27ad380ca44a39c036aae0c7e3bd1.jpg "December Rate Cut Seems Likelier After One Fed Official’s Comments")
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Key Takeaways
- A key Federal Reserve official indicated he was open to lowering the central bank’s key interest rate at the Fed’s next meeting in December.
- Odds of a rate cut jumped significantly after the remarks and now seem more likely than not, according to financial markets.
- Fed officials have been torn between lowering rates to boost the faltering job market or keeping them higher for longer to fight inflation.
The odds of the Federal Reserve lowering borrowing costs in December have suddenly flipped from unlikely to more likely than not after the words of a key federal official.
John Williams, president of the Federal Reserve Bank of New York, shook up the outlook for the Fed’s key interest rate Friday. He made comments indicating he was open to lowering the fed funds rate at the next meeting of the Federal Open Market Committee in December to help bolster the job market.
His remarks made a rate cut seem far more likely: financial markets were pricing in a 73% chance of a December rate cut on Friday morning following Williams’s speech, up from 39% the day before, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.
The Fed’s 12-member policy committee has been sharply divided over whether to cut rates to breathe some life into an increasingly sluggish job market, or to keep them higher for longer to fight inflation that has run above the Fed’s target of a 2% annual rate for more than four years.
What This Means For The Economy
Lower interest rates could juice the economy at a critical moment, when the job market is weakening. However, they could also stoke inflation, which the Fed would have to respond to by raising interest rates more in the future.
There is “room for a further adjustment in the near term to the target range for the federal funds rate,” Williams said at a conference in Chile.
The fed funds rate influences interest rates on all kinds of debt. Lower rates can encourage borrowing and spending and hiring, while lower rates do the opposite, and can help supply and demand rebalance to cool down high inflation.
