After weeks of mixed signals, the Federal Reserve's tone on monetary policy turned noticeably more dovish Friday, driving a sharp repricing in interest-rate expectations ― with traders now seeing an almost 3-in-4 chance of a December cut.
According to the CME FedWatch tool, the odds of a 25-basis-point rate reduction at the Dec. 10 policy meeting jumped to 74%, up from just 25% the day before.
The shift followed a flurry of comments from policymakers, led by New York Fed President John Williams and Governor Stephen Miran, that cast recent inflationary concerns as overblown and highlighted a weakening labor market.
Fed’s Williams Focuses On Labor Market Risks
Speaking Friday morning, Williams pushed back on recent hawkish rhetoric, noting that "the downside risks to employment have increased as the labor market has cooled," while "upside risks to inflation have lessened somewhat."
Williams said he still sees "room for a further adjustment in the near term to the target range for the federal funds rate" to bring policy closer to neutral.
His comments marked a notable departure from other Fed members’ remarks earlier this week, which leaned more toward holding rates steady amid sticky inflation data.
He added that while tariffs have contributed to higher prices, they are "not expected to lead to persistent inflation," and reiterated the need to balance inflation control with the goal of maximum employment.
Miran: Inflation Risks Are Overstated
Fed Governor Stephen Miran delivered an even stronger signal on Bloomberg, saying he would "absolutely vote for [a] 25 basis points cut" in December.
Miran highlighted that Thursday’s release of the September jobs data continued to support the case for another reduction.
“I think the implications of yesterday were obviously dovish, and if anyone was on the fence, I would hope that this would move them in the direction of cutting”
"Those are indications that the labor market has been affected by restrictive Fed policy."
Miran also indicated that much of the inflation being captured in official data is outdated or misleading.
Miran emphasized the lagging nature of monetary policy, saying that Fed actions today must be based on expectations for 12 to 18 months ahead—not on outdated conditions from 2022 or 2023. "It doesn’t make sense to be setting policy for where the economy was three or six months ago," he said.
"We should be setting policy based on where the economy is likely to be."
Market Reactions
Wall Street's selloff took a breather Friday, with the S&P 500—tracked by the Vanguard S&P 500 ETF (NYSE:VOO)—up 0.2% by 10:15 a.m. ET after sliding 1.6% the day before.
The Nasdaq 100, represented by the Invesco QQQ Trust (NASDAQ:QQQ), hovered near flat following Thursday's 2.2% drop, showing signs of stabilization. Dovish remarks from Federal Reserve officials prompted modest moves in bond and currency markets.
The U.S. dollar edged slightly lower, while Treasury yields declined. The 2-year yield slipped 3 basis points to 4.50%, and the 10-year yield dipped 2 basis points to 4.06%.
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