NY Fed downplays Williams' speech, interpreted by market as rate cut signal
The Federal Reserve Bank of New York clarified a market-moving speech made by President John Williams on Thursday that was interpreted by Wall Street as a signal of a 50-point interest rate cut at the end of the month.
"This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting," a New York Fed spokesman said, according to multiple media reports.
During his speech at the Central Bank Research Association on Thursday, Williams said his research showed that when interest rates are near zero, a central bank should “act quickly to lower rates at the first sign of economic distress.”
“It’s better to take preventative measures than to wait for disaster to unfold,” he said.
Traders are currently pricing in a 100 percent chance of a rate cut at the July 31 meeting, but after Williams’ speech, expectations for a deeper, 50-basis point rate cut leaped above 60 percent.
The benchmark federal funds rate is currently between a range of 2.25 percent to 2.50 percent; after the New York Fed clarified the remarks, expectations for a smaller, 25-basis point cut rose again.
Trump weighed in on the controversial speech Friday morning, writing in a tweet that he liked Williams’ initial speech.
“His first statement is 100% correct in that the Fed “raised” far too fast & too early,” Trump wrote.