The Fed has given a clear 'hint' for a rate cut in December.
Fed Governor Waller stated at a central bank seminar on Monday that he leans towards cutting rates at the December meeting, as monetary policy remains sufficiently restrictive to continue putting downward pressure on inflation.
1. Waller is the leading Fed official this week and a key figure influencing the Fed's inflation response strategy. His remarks seem to be warming up for Fed Chair Powell. It is hard to imagine that Waller would risk making such a clear 'forecast' without Powell's tacit approval.
2. However, Waller also left himself a way out. He stated that if inflation data unexpectedly rises from now until the December meeting, it would support keeping interest rates unchanged. The 'inflation' data Waller referred to is the U.S. November CPI to be released on December 11, while the Fed will announce its December rate decision at 03:00 on December 19 Beijing time.
* This statement sounds normal, but upon reflection, something feels off—what is about to be released this week is the non-farm payroll data, yet Waller focuses on inflation, indicating that the November non-farm data to be released this Friday is unlikely to affect the Fed's December decision. In other words, the Fed may believe that the November non-farm data will not be 'hot' enough to prevent it from cutting rates.
3. Waller also stated that he expects to continue cutting interest rates next year until we approach a more neutral policy rate setting, but the pace and magnitude of the declines remain to be determined.
At present, Trump's economic agenda has not disrupted the Fed's interest rate cut plans, and the Fed continues to act at its own pace. As we have mentioned multiple times in (Global Market Strategy), Trump's policies will only begin to take shape in the second half of next year, with most policy adjustments taking effect in 2026. The Fed has no need to disrupt its pace for events that have not yet occurred. From the beginning of the rate cuts, the Fed understood that this process would not be smooth.
On the same day, two other Fed officials also delivered speeches.
Williamson, the usually neutral New York Fed President, has also taken a stand. He stated that as inflationary pressures continue to ease, the Fed may cut rates further for a period of time. The 'period of time' he referred to at least includes December.
Atlanta Fed President Bostic said in an interview with reporters on Monday that he is open to whether to cut rates again in December, emphasizing that the upcoming employment data is crucial for making this decision. I will not approach this meeting with a predetermined mindset.
However, Bostic also published an article on Monday, suggesting continued support for rate cuts. The article stated that his fundamental judgment remains that the inflation rate will continue to decline towards the Fed's 2% target, although how much and how quickly to cut rates to achieve this goal while avoiding unnecessary harm to the labor market remains an open question.
