Powell's ally delivers重磅 guidance—has a Fed rate cut in December become likely again?
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Powell's ally delivers重磅 guidance—has a Fed rate cut in December become likely again?
Economists pointed out that the formation of a strong faction supporting interest rate cuts by the three most influential officials will be difficult to shake...
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Over the past month, Federal Reserve officials have publicly clashed over the economy's potential trajectory and appropriate interest rate levels. These open debates have led economists and market participants to widely question whether there is sufficient support within the Fed for another rate cut at its upcoming policy meeting on December 10.
However, market sentiment has shifted dramatically in recent days—investors and economists now generally believe the Fed is likely to cut rates in December.
What’s driving this shift? Economists point out that Fed officials are leaning toward another rate cut due to ongoing concerns about the health of the labor market.
"The deterioration we’re seeing in the labor market, I think, is enough to justify a Fed rate cut in December," said Tom Porcelli, chief economist at Wells Fargo, in an interview.
The first official data released after the end of the government shutdown showed the unemployment rate rose to 4.4% in September, the highest level in nearly four years. There are also signs that the labor market’s stable but low-hiring, low-firing state may be nearing a tipping point into worsening conditions.
"The job market remains in a precarious state," Matthew Luzzetti, chief U.S. economist at Deutsche Bank, stated bluntly in a note to clients.
A more critical turning point came from key officials’ statements. Josh Hirt, senior economist at Vanguard, revealed in an interview that he personally expects the Fed to cut rates, with his key rationale being New York Fed President Williams’ public remarks last Friday—Williams, a close ally of Chair Powell, explicitly advocated for a rate cut and said he "still sees room for further adjustments to policy in the near term."
This statement immediately ignited financial markets, sending expectations for a December rate cut soaring from nearly 40% just one day earlier to over 70%. "I think the market’s interpretation is accurate," Hirt said.
He added that Williams’ stance means the three most influential Fed officials—Powell, Williams, and Governor Waller—all support a new round of easing. "We see this as a very powerful bloc that would be hard to overturn."
Ethan Harris, former chief economist at BofA Securities, also noted that the economy is showing more compelling signs of weakness, forcing the Fed to act.
Precise Messaging from the Fed’s Top Tier
Fed communication—especially at the highest levels—is rarely accidental.
Signals from top leadership, particularly the chair, vice chair, and the highly influential New York Fed president, are carefully calibrated—to convey clear policy direction while avoiding excessive market reactions.
This is precisely why the remarks by current New York Fed President Williams last Friday carried such weight in the markets. By virtue of his position, he is one of the three members of the Fed’s leadership “troika,” alongside Chair Powell and Vice Chair Jefferson.
Therefore, when Williams hinted at "the possibility of further rate adjustments in the near term," investors interpreted it as a clear signal from the top: the leadership favors at least one more rate cut in the near future, most likely at the December Federal Open Market Committee (FOMC) meeting.
"While the phrase 'in the near term' is somewhat ambiguous, the most straightforward reading is the next meeting," analyzed Krishna Guha, head of global policy and central bank strategy at Evercore ISI, in a client report.
"Even if Williams is expressing only his personal view, signals from a member of the Fed’s leadership troika on a major current policy issue are almost always approved by the chair; issuing such a signal without Powell’s tacit approval would be a professional misstep," he added.
Core of Internal Divisions: Three Unresolved Disputes
Despite growing consensus on rate cuts, economists still expect one or more Fed officials who favor holding rates steady to cast dissenting votes at the meeting.
Other officials have not been as proactive in supporting rate cuts. Boston Fed President Collins and Dallas Fed President Logan have both expressed hesitation about further easing. In a CNBC interview, Collins voiced concern about inflation, while Logan took a more hawkish stance, saying she isn’t even sure she would have voted for the previous two rate cuts. Notably, Collins has a voting seat on the FOMC this year, while Logan will gain voting rights in 2026.
Harris said that stepping back, the Fed faces a "mission impossible": the economy is displaying stagflationary traits—high inflation alongside high unemployment—and there is no clear Fed policy playbook for such a scenario, leading to deep divisions within the rate-setting committee. "There are some very fundamental disagreements."
The first disagreement centers on whether current Fed policy is restrictive or accommodative. Officials worried about inflation argue that monetary policy works through financial markets, which are currently strong, suggesting policy may already be loose; those supporting rate cuts counter that financial conditions in key sectors like housing remain tight.
The second dispute revolves around interpretations of inflation. Dovish officials like Williams argue that inflation would have been lower if not for the temporary impact of tariffs; however, inflation hawks point to rising price pressures in sectors unaffected by tariffs.
Beyond this, all Fed officials are puzzled by one contradictory phenomenon: how can a weak labor market coexist with strong consumer spending?
"This will be a fascinating vote," Harris said. He added that the final decision might be made on the spot during the meeting.
Special Context: Data Vacuum and the Rationale for ‘Insurance Cuts’
Former Cleveland Fed President Mester analyzed that Powell might use the December 10 press conference to send a key message: this rate cut would be an “insurance cut,” after which the Fed would pause to assess the economy’s response.
Notably, due to the record-long government shutdown, the Fed will lack access to the latest government data on employment and inflation at this meeting, meaning decisions will be made under a degree of “data vacuum.”
Vanguard’s Hirt also pointed out that statements from Fed officials opposing a December rate cut are sending an important signal to markets: the Fed is not cutting “just to cut,” thereby preventing bond markets from pricing in higher inflation expectations. "This limits the potential negative consequences of rate cuts when inflation is still elevated and the labor market hasn't clearly deteriorated."
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