Federal Reserve officials signal interest rate cuts again! Williams states that the September meeting will make "real-time" decisions, and the risk balance has shifted

According to Zhitong Finance APP, John Williams, President of the Federal Reserve Bank of New York, stated on Wednesday that the upcoming Federal Reserve policy meeting will be a "meeting full of variables," suggesting a possible adjustment to interest rate policy, but did not specify a clear inclination. In an interview, he emphasized that the Federal Reserve always aims to achieve full employment and price stability, and that the current "risk balance has shifted."

This statement echoes the remarks made by Federal Reserve Chairman Jerome Powell last Friday. Powell pointed out that the downside risks to the U.S. labor market have significantly increased and stated that "the change in risk balance may require an adjustment in policy stance," which directly boosted market expectations for a rate cut in September.

Williams further explained that the current federal funds rate is at a "moderately restrictive" level, which means that the Federal Reserve has room to cut rates while needing to maintain policy flexibility. "We may need to lower interest rates, but we will still maintain a certain degree of restrictive stance in the future," he said, adding, "The key is to accurately grasp the actual state of the economy."

It is worth mentioning that Federal Reserve officials have recently been sending signals of a policy shift, reflecting that institutions' assessments of the economic outlook are shifting from "anti-inflation" to "recession prevention." The market generally expects that if the August non-farm payroll data continues the weak trend of July, the Federal Reserve may initiate a rate cut cycle at the September meeting.

There are significant divisions within the Federal Reserve regarding the path of rate cuts. Stephen Stanley, Chief U.S. Economist at Santander Bank, pointed out that some officials advocate for multiple rate cuts, while another faction supports only a single adjustment, and some members oppose any rate cut actions. He predicts that the September meeting may reach a consensus of "cutting rates once and then observing."

Matthew Luzzetti, Chief Economist at Deutsche Bank, believes that considering the dual risks of inflation and employment, the Federal Reserve is more likely to adopt a "gradual rate cut." Policymakers may initiate a rate cut in September, with subsequent actions strictly dependent on economic data performance.

This division is clearly visible in the public statements of officials. Raphael Bostic, President of the Atlanta Fed, supports a "wait-and-see" strategy, while Loretta Mester, President of the Cleveland Fed, explicitly stated that she would not vote for a rate cut if the meeting were held this week. Esther George, President of the Kansas City Fed, even did not rule out the possibility of a rate hike.

Powell's speech at the Jackson Hole annual meeting highlighted the policy dilemma: on one hand, acknowledging the increasing downside risks in the labor market, and on the other hand, warning that inflation pressures from tariffs may persist. He emphasized that policy adjustments need to be based on "imperfect information" and that actions should be taken before the data becomes clear.

As the September meeting approaches, the Federal Reserve will release its latest economic forecasts. June data showed that most officials supported at least two rate cuts within the year, but some members believe that rates should remain unchanged until 2025. The Senate confirmation process for new members of the White House Council of Economic Advisers may further influence the committee's decision-making dynamics RSM Chief Economist Brusuelas pointed out that the biggest challenge currently is balancing the dual goals of price stability and maximum employment. If employment data continues to deteriorate or inflation rebounds, the Federal Reserve may be forced to adopt a "one-time adjustment" strategy rather than a series of rate cuts.

Minneapolis Fed President Kashkari emphasized that proactively adjusting policies may be preferable to passive responses before a substantial deterioration in the labor market occurs. He warned that if employment weakness evolves into a recession, its impact would be more severe than tariff uncertainty