Some Fed officials are open to a cut soon. Others aren't so sure
Treasury yields fell Friday as the Federal Reserve's policy rift widened, with New York Fed president John Williams signaling openness to another rate reduction while regional counterparts urged restraint before year-end.
The 10-year Treasury yield dropped more than four basis points to 4.059%, while the 2-year shed more than 5 basis points to 3.501%. The move followed Williams' remarks in Santiago, Chile, where he outlined the case for continued monetary easing despite persistent inflation pressures.
"I still see room for a further adjustment in the near term to move the stance of policy closer to the range of neutral," Williams said.
He characterized current monetary policy as "modestly restrictive" since the Fed's September and October cuts, signaling room for additional relief.
Markets responded swiftly. Fed funds futures traders repriced December cut odds above 70%, reversing a week of pessimism that had pushed expectations below 40%.
Policy split threatens December consensus
Yet Williams' comments exposed deepening divisions within the central bank. Dallas Fed president Lorie Logan demanded higher evidentiary thresholds, stating "with two rate cuts now in place, I'd find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected."
She warned that premature cuts risked forcing costly reversals that could generate "unwanted financial and economic volatility."
Boston Fed president Susan Collins amplified those concerns. "Restrictive policy is very appropriate right now," she told CNBC. "That makes me hesitant as I look forward to think about what the next policy move should be."
But Stephen Miran, recently appointed to the Fed board by President Trump, has continued to call for rate cuts and said he would be willing to vote for a 25-point reduction, instead of the half-point he's long advocated, if it's a close vote in December.
The divergence reflects Fed tension between labor market and inflation risks. Williams emphasized softening employment data, while Logan and Collins highlighted that inflation remains well above the Fed's 2% target.
Market implications amid policy uncertainty
Logan added that continued asset purchases may be necessary soon to manage money market functions, though she stressed these would be "technical steps" unrelated to policy stance.
Collins warned separately that rising economic fragmentation could complicate the Fed's inflation management longer-term.
For mortgage professionals, Friday's volatility underscored genuine policy uncertainty heading into December's meeting. Yield curves may remain choppy as additional Fed officials weigh in, with the market awaiting more clarity on the central bank's risk calculus.
The employment data released this week showed mixed signals, with 119,000 job gains exceeding expectations but the unemployment rate rising to 4.4% in September, bolstering both camps' arguments.
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