Rate cut in December likely? Federal Reserve's Williams: "still room for rate cut in the short term"

New York Fed President Williams said that considering the softening labor market, he believes that there is still room for the Fed to cut interest rates in the short term. Williams stated that the downside risks to employment have increased, while upside risks to inflation have decreased. He said, "I believe that the current monetary policy is somewhat contractionary, but compared to the measures we have taken recently, its degree of contraction has eased. Therefore, I believe there is still room in the short term to adjust the target range for the federal funds rate in order to bring the policy stance closer to a neutral range and maintain a balance between our two goals." Williams' comments indicate that another rate cut is still possible. Recently, several Fed officials have taken a hawkish stance, with some expressing opposition to further consecutive rate cuts in December, or uncertainties about supporting such measures. According to pricing of futures contracts, the market currently sees a 40% chance of a rate cut at the December meeting. Williams said in his speech, "My assessment is that with the cooling labor market, the downside risks to employment have increased while the upside risks to inflation have decreased. Nevertheless, core inflation is still trending lower, and there are no signs of 'second-round effects' from tariffs." Williams stated that trade tariffs may have pushed inflation up by about 0.5 to 0.75 percentage points, but added that he believes tariffs will not trigger any second-round or other price pass-through effects. In the year ending September, the U.S. consumer price index rose by 3%, causing concern for some officials. Williams said that the Fed must restore inflation to the target level of 2%, but in the process, should not cause more serious impacts on the labor market. Looking ahead, Williams said, "We must continue to work towards achieving our long-term goal of restoring inflation to 2%. At the same time, this process must avoid unnecessary risks to our full employment goal." Williams said that tariffs will continue to push up prices in the coming year, but he expects that by 2027, inflation will return to the target level of 2%.