The probability of the Federal Reserve cutting interest rates next month doubled overnight.

The communication of the Federal Reserve, especially at the highest levels, is rarely accidental. Statements from the highest decision-making level - especially the Federal Reserve Chair, Vice Chair, and the "influential" New York Federal Reserve President, often go through careful consideration in an attempt to strike a balance between conveying clear policy signals and avoiding triggering excessive reactions in the financial markets. This is why the speech by the current New York Federal Reserve President Williams on Friday is so important to the market: When Williams hinted at the possibility of further rate adjustments "in the near future," many investors saw it as a key signal from the highest decision-making level of the Federal Reserve - that the Federal Reserve currently still leans towards another rate cut in the near future, likely at the December Federal Open Market Committee meeting. "The term 'in the near future' is somewhat vague, but the most obvious interpretation is the next meeting," Krishna Guha, Head of Global Policy and Central Bank Strategy at Evercore ISI, stated in a client report. Guha added, "Although Williams may be expressing a personal view, signals issued by the three giants of the Federal Reserve on key real-time policy issues almost always require the approval of the Chair. If he sends such a signal without Powell's consent, it would be a serious professional mistake." Market data also confirms that Williams' "dovish" speech on Friday injected crucial confidence into the market, and like a "long-awaited rain," the U.S. stocks finally saw a rebound on Friday, with the three major indices generally gaining around 1%. According to the Chicago Mercantile Exchange's Fed Watch tool, after Williams' speech on Friday, the probability of a rate cut by the Federal Reserve in December surged to about 70%, almost doubling from less than 40% the day before. Many industry insiders also believe that Williams' remarks on Friday may have saved the U.S. stock market from a potential sell-off - on Thursday, major stock indices suffered heavy losses, and investors feared another significant downturn on Friday. Although the major indices fluctuated in the morning trading session, the bulls clearly dominated after Williams' speech, and the market reached intraday highs in the afternoon trading session. Another Rate Cut on the Horizon? Williams' comments on interest rates can be seen as happening at a sensitive time for the Federal Reserve and the financial markets. A growing number of Federal Reserve officials, including some who supported rate cuts in September and October, have stated in the past two weeks that there should not be another rate cut next month. Therefore, many industry insiders believe that the December meeting may become one of the most unusual Fed rate meetings in recent years. Officials not only differ on how to address the risks of weak job growth and stubborn inflation, but also lack the usual data support used to coordinate forecast differences. The recent government shutdown has led to delays in releasing employment and inflation data for two consecutive months. Williams' support for a rate cut in the near future is based on his assessment that the risks of weaker-than-expected job data have increased and the possibility of faster-than-expected inflation has "decreased." "Looking forward, inflation rates must be sustainably restored to the long-term target of 2%. At the same time, we must ensure that this does not pose excessive risks to achieving the goal of full employment," Williams emphasized. It is well known that although the Federal Reserve's rate decisions are led by the Chair, they must be approved by the Federal Open Market Committee, made up of 12 members. The committee consists of seven appointed Board members, the New York Federal Reserve President with permanent voting rights, and four rotating regional Federal Reserve Presidents with voting rights each year. Currently, the lines between the hawkish and dovish camps in the Federal Reserve are very clear. As mentioned by the well-known Fed mouthpiece journalist Nick Timiraos, at least three dissenting votes may occur regardless of whether the Fed decides to cut rates in December. On one side, if the Fed decides not to cut rates, the three officials appointed by Trump (Waller, Bowman, and Mester) are likely to vote against the rate cut; on the other side, if the Fed decides to cut rates, they may face opposition from the regional Federal Reserve Presidents - it is worth reminding investors that the four regional Federal Reserve Presidents with voting rights have all opposed or expressed unwillingness to cut rates at the meeting on December 9-10 in the past few weeks, with Kansas City Federal Reserve President George Schmid voting against the rate cut decision last month. In the consensus-driven Federal Reserve, one or two dissenting votes are not uncommon, but there have only been five policy meetings with three dissenting votes since 2011, and there have been no instances of four dissenting votes since 1992. This significant divergence actually means that the "three giants" of the Federal Reserve - Powell, Clarida, and Williams (their views can be considered consistent) - whichever camp they lean towards, that camp is likely to prevail in the rate decision in December. This is also why when Powell stated at the rate decision press conference last month that "a rate cut in December is by no means a done deal," market expectations for a rate cut quickly dissipated. Now, Williams' remarks have once again shifted the balance towards a rate cut... Interestingly, seemingly to ensure a successful rate cut in December, the most dovish Fed official and "Trump ally" Mester also made a rare "concession" on Friday. Mester hinted that if he becomes the "decisive vote" on the rate direction at that time, he would consider following the majority in supporting a 25 basis point rate cut, rather than voting against it as he did in the past two meetings for a larger rate cut. Mester stated, "If actions are taken out of vanity, it will cause substantial damage to the economy." Of course, considering there is still more than two weeks until the Fed's rate decision in December, there are still variables in the rate direction at that time. Renowned economist Mohamed El-Erian also warned the market on Friday not to be "bewildered" by the dovish remarks made by New York Federal Reserve President Williams, and emphasized that the Federal Reserve's policy decision in December may face challenges. El-Erian pointed out on the social media platform Twitter that although Williams' remarks may align with Fed Chair Powell's views, Powell "still faces a tough challenge in persuading the Federal Open Market Committee to avoid making divisive decisions on December 11." This article is reprinted from Caixin; GMTEight Editor: Wen Wen.