Federal Reserve officials clearly advocate for interest rate cuts, and market expectations for the probability of a Fed rate cut have soared to over 70%

After Federal Reserve officials publicly expressed differing views on interest rates, market expectations for a Fed rate cut were widely questioned. However, following comments from New York Fed President Williams supporting a rate cut, market sentiment dramatically shifted, with investors and economists generally believing that the Fed is likely to take action to cut rates in December.

Wells Fargo Chief Economist Tom Porcelli stated that the deteriorating labor market is sufficient justification for a Fed rate cut. Official data shows that the unemployment rate rose to 4.4% in September, the highest level in nearly four years. Deutsche Bank Chief U.S. Economist Matthew Luzzetti bluntly remarked that the job market is still "in a precarious state." Vanguard Senior Economist Josh Hirt revealed that his personal judgment on the Fed cutting rates is primarily based on Williams' public comments last Friday.

As a close ally of Fed Chair Powell, Williams clearly advocates for a rate cut and stated that he "still believes there is room for further adjustments to interest rates in the short term." This statement directly ignited the financial markets, with rate cut expectations soaring from nearly 40% a day earlier to over 70%. Josh Hirt pointed out that Williams' stance means that the three most influential officials at the Fed—Powell, Williams, and Fed Governor Waller—are all in favor of a new round of easing, which is a "very weighty camp that is hard to shake."

Evercore ISI Global Policy and Central Bank Strategy Head Krishna Guha analyzed that the phrase "in the short term" is most directly interpreted as the next meeting (i.e., the December meeting). He believes that signals from the members of the Fed's "trio" are almost always approved by the Chair. Despite the warming consensus for a rate cut, economists still expect some officials to vote against it at the meeting. Boston Fed President Collins and Dallas Fed President Logan have both expressed hesitation about further rate cuts. Former Cleveland Fed President Mester analyzed that Powell may use the December press conference to convey a key message: this rate cut is an "insurance cut," after which the Fed will watch the economy's response.

It is worth noting that due to the government shutdown, the Fed will not have access to the latest employment and inflation data at this meeting.