Multiple Federal Reserve officials signal that expectations for a rate cut in December are rising

The Zhitong Finance APP noted that several Federal Reserve officials have spoken out in support of a potential interest rate cut as early as this month. San Francisco Fed President Mary Daly stated that a rate cut this month is uncertain but remains within the policymakers' considerations.

“To maintain the good development of the economy, we must continue to adjust our policies,” Daly said on Tuesday. “Whether in December or later, we will have the opportunity to debate and discuss this issue at the next meeting, but the key is that we must continue to lower policies to adapt to the economy.”

Daly's remarks are generally consistent with those of several other policymakers who spoke this week, who explicitly stated that they expect the Federal Reserve to continue cutting rates over the next year, but did not indicate a commitment to the next rate cut later this month.

Chicago Fed President Austan Goolsbee also stated on Tuesday that he expects rates to “decline significantly from current levels” over the next year.

Fed Governor Adriana Kugler stated that the economy remains in “good shape,” and inflation is “sustainably moving” toward the central bank's 2% target. Kugler indicated that she still believes this data is consistent with inflation moving toward the Fed's 2% target, but “the job is not done.” She noted that particularly, the inflation rate for housing services remains high.

Neither of the two explicitly indicated whether they lean toward a rate cut later this month.

Among the officials who spoke this week, only Governor Christopher Waller expressed a preference for a rate cut in December. However, he added in his remarks on Monday that his decision would depend on more data released before the meeting.

Since September, Federal Reserve officials have cut rates by three-quarters of a percentage point at two meetings. They will meet again on December 17-18. Several policymakers have expressed support for continuing to cut rates, but at a slower pace.

Daly stated that supply and demand are roughly balanced at present, inflation is continuing to advance, and policymakers are committed to bringing inflation down to target levels.

“Rates are gradually coming down, which is important for families and businesses that need some relief, but there is still much work to be done,” she said. “This is the most important part: even if we cut rates again, the policy will remain restrictive.”

Daly indicated that she believes the neutral interest rate (the rate level that neither stimulates nor suppresses economic growth) may be “close to 3%.” However, given the level of uncertainty, she stated that the Federal Reserve should proceed slowly.

The San Francisco Fed President said, “I think we can take our time and adjust as the economy provides us with more information.”

Daly is a voting member of the Federal Open Market Committee responsible for setting interest rates this year.

Short-term U.S. Treasury Bonds Rise

After several Federal Reserve officials expressed support for a potential interest rate cut as early as this month, short-term Treasury yields are expected to end at lower levels in volatile trading.

The yield on the two-year U.S. Treasury bond fell by as much as 4 basis points to 4.14%, the last drop being on November 4. After Chicago Fed President Goolsbee spoke, the yield hit an intraday low during afternoon trading in the U.S., making him the third central bank speaker of the day. Federal Reserve Chairman Jerome Powell is scheduled to speak on Wednesday Bond yields across various maturities rebounded from their lows, with most bonds closing higher on the day. This follows a job vacancy indicator that showed a strong labor market, which may make the Federal Reserve less inclined to cut interest rates immediately—especially if the November employment report released on Friday confirms this. Previously, a brief political crisis in South Korea had released demand for safe-haven assets, including U.S. Treasuries.

Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, stated, "It is wise to maintain a range-bound mindset on U.S. Treasuries until clearer data trends emerge." He noted that U.S. Treasury yields are close to 4.5%, and valuations are near 4%, making them attractive.

Traders remain highly uncertain about the outcome of the Federal Reserve's meeting on December 17-18, with Fed officials indicating that the results will depend on economic data. The market suggests a roughly 65% chance of a 25 basis point rate cut in December, with about 80 basis points of cuts expected by the end of next year. The Fed cut rates by half a percentage point in September and by 25 basis points last month