Recent Fedspeak Confirms Intentions for Rate Cuts to Contiue: BofA

What to know:

• As expected by markets, there appears to be growing consensus at the Fed surrounding two more 25 basis point rate cuts this year, according to Bank of America.
• Notably, New York Fed President John Williams has shifted to a more dovish tone, citing risks to the labor market.

With very little in the way of government economic statistics, comments from Fed speakers have taken on greater import, and Bank of America found little in recent talk that would suggest the central bank won't continue with rate cuts at its last two meetings of 2025.

New York Fed President John Williams, a key voice on monetary policy and often aligned with Chair Jerome Powell, has shifted tone a bit, the report found. In a recent interview with The New York Times, Williams expressed heightened concern about labor market deterioration and said he supports bringing interest rates back to a “neutral” level, typically viewed as neither stimulating nor slowing the economy. That’s a notable departure from earlier caution around the pace of rate cuts, BofA said.

Still, the path forward isn’t unanimous. Governor Michael Barr surprised analysts with a hawkish speech Thursday, warning against complacency on inflation and suggesting he expects just one cut at most. Regional Fed presidents like Chicago’s Austan Goolsbee and St. Louis’s Alberto Musalem also remain cautious, worried that premature cuts could reignite inflation pressures.

Taken together with comments from Powell and others, though, there appears to be growing momentum within the Fed for continued easing following the September 25 basis point rate cut. The Fed's next meeting is Oct. 28-29 and the year's final policy gathering will be Dec. 9-10.

Despite the government shutdown, the Bureau of Labor Statistics is still planning on releasing the September Consumer Price Index report next week, so there will be at least one piece of key data that could sway policymakers.

For their part, interest rate traders for some time have priced in a near certainty of 25 basis point rate cuts at both the October and December Fed meetings. In fact, recent market tremors have some traders placing bets on a 50 basis point rate cut at one of those meetings. According to CME FedWatch, there's an 8% chance of 75 basis points of rate cuts by year-end.