Fed’s John Williams Advocates for Additional Rate Cuts as Labor Market Weakens

• Williams supports rate cuts, citing concerns over a weakening labor market.
• Market expects 25bps cut at October 29 Fed meeting, with another in December.
• Fed officials prioritize labor market over inflation in upcoming policy decisions.

New York Federal Reserve President John Williams has voiced support for additional interest rate cuts this year, highlighting concerns over a cooling labor market. In an interview, Williams highlighted the potential risks of further employment slowdowns, emphasizing that these concerns should take precedence over inflation risks at present. His statements add to a growing sentiment among Federal Reserve officials that rate cuts may be necessary to address the softer job market, which has become a more pressing issue than inflation.

Williams’ support for further rate cuts comes as the labor market shows signs of weakening. In his remarks, the New York Fed president pointed to a shift in focus over the last few months, where attention has increasingly turned to employment data rather than inflation numbers.

While inflation remains above the Fed’s 2% target, Williams noted that underlying inflation trends have moved closer to the goal. However, the broader data suggest a slowdown in the labor market, which has become a more immediate concern.

The labor market’s cooling has been a central point in discussions within the Federal Open Market Committee (FOMC). Recent job data has revealed that the labor market may not be as strong as initially believed, prompting the first rate cut of the year last month. According to the minutes from the latest FOMC meeting, many officials supported the idea of further rate cuts by the end of 2025, driven primarily by the slowdown in employment growth.

Expectations for Fed’s Rate Cuts This Year

Despite ongoing concerns about inflation, Fed officials, including Williams, are leaning towards additional rate reductions. Williams did not specify the exact number of rate cuts expected but indicated his support for further reductions based on incoming data. The market is currently pricing in the possibility of a 25-basis-point rate cut at the next Federal Reserve meeting, scheduled for October 29. CME FedWatch data shows a 94.6% probability of a 25-basis-point cut during this meeting.

Moreover, there is a 79.8% likelihood of another 25-basis-point rate cut at the Federal Reserve’s December meeting. The market’s expectations align with the recent comments from Fed officials like Michelle Bowman and Stephen Miran, who have highlighted the need to focus on labor market dynamics over inflation risks.

Several members of the Federal Reserve, including Bowman and Miran, have indicated that the central bank should shift its focus towards the employment sector. Miran recently noted that he was more “sanguine” about inflation than many of his colleagues, further suggesting that labor market conditions should be prioritized. He also advocates for a series of larger rate cuts, including 50-basis-point reductions, to address the economic pressures tied to labor market weakness.