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By Howard Schneider
WASHINGTON (Reuters) -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 shift bets firmly in favor of a December rate reduction even as other officials insisted borrowing costs should remain steady for now.
“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,” Williams said in comments prepared for delivery at a Central Bank of Chile event.
His comments, as a vice-chair of the rate-setting Federal Open Market Committee and permanent voter on rate policy, led investors to put a nearly 60% chance of a quarter-point cut at the U.S. central bank’s December 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.
Federal Reserve Bank of Boston President Susan Collins said in a CNBC interview on Friday that she thinks monetary policy is in the right place given the economy’s resilience, reaffirming a view that had helped push market sentiment away from bets on a Fed cut.
Collins, a voter on Fed policy this year and therefore able to dissent against FOMC decisions, said she was “hesitant” about further rate cuts, with the central bank’s benchmark policy rate currently set in a 3.75% to 4% range that she feels is only “mildly restrictive” and “very appropriate right now” to keep some downward pressure on inflation.
Dallas Federal Reserve President Lorie Logan, meanwhile, on Friday called for leaving the policy rate on hold “for a time” while the central bank assesses the impact of monetary policy on the economy.
Logan does not currently hold one of the four voting seats that rotate annually among the 11 reserve bank presidents other than Williams, but will have a voting role next year.
In remarks prepared for delivery in Zurich, she repeated her view that the Fed’s October interest-rate cut was not warranted with inflation too high and the labor market roughly balanced.
“In the absence of clear evidence that justifies further easing, holding rates steady for a time would allow the FOMC to better assess the degree of restriction from current policy,” she said.
The debate over a December rate cut is being carried out in the absence still of the core economic data the Fed typically relies on, with delays still in the release of jobs and inflation data due to the recently ended government shutdown.
Several members of the Washington-based Board of Governors, all appointees of President Donald Trump, have been the most vocal in advocating that rates should move lower, with inflation due to fall in their view and risks mounting to the job market. The current “hawks” by contrast are centered among presidents of the 12 regional reserve banks, quasi-private institutions overseen by local boards and created under the Federal Reserve Act to decentralize power as a further check on the influence of elected officials, and particularly the president, over monetary policy.
(Reporting by Howard Schneider; Editing by Chizu Nomiyama and Andrea Ricci )
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