As expectations for further easing gain ground, CME Group’s FedWatch tool now shows an 81% probability that the Federal Reserve will trim rates by a quarter point at its forthcoming December 9-10 meeting—a figure that’s nearly doubled in just a week.
The surge in odds comes as Federal Reserve officials and investors increasingly point to persistent softness in the labor market and subdued inflation as justification for additional support.
Speaking to Fox, Fed Governor Christopher Waller remarked that job and inflation indicators remain tepid, making a December rate cut appropriate. Waller said that most of the private sector and anecdotal data suggest the labor market continues to weaken and inflation is on track to slow. Any further action would hinge on a plethora of economic reports soon to be released, potentially shifting the Fed’s stance depending on whether new figures reaffirm or contradict the current outlook, added Waller.
Waller, alongside San Francisco Fed President Mary Daly—who told the Wall Street Journal on Monday she now supports a third consecutive rate reduction—cast doubt on the reliability of the September jobs report, noting its 119,000 payroll gain could be subject to downward revision and highlighting the uptick in unemployment to 4.4%.
While policymakers remain divided on the necessity of a cut, recent high-profile statements, particularly from New York Fed President John Williams last week, have further swayed market conviction toward a quarter-point decrease, as reflected in Fed fund futures markets.
Looking forward, Waller indicated that the January outlook hinges on the data set to be released after delays caused by the government shutdown. Waller said that if the forthcoming numbers mirror current trends, another adjustment could be warranted. However, a sudden uptick in job growth or inflation could prompt the central bank to pause.
