December rate cut odds creep lower with Federal Reserve hawks out in full force

The Federal Reserve’s more hawkish officials are out in force today making the case against any further easing in monetary policy, and in some cases, voicing disagreement with the cut delivered this week.

At the end of Fed Chair Jerome Powell’s press conference on Wednesday, during which he said a December reduction was “far from” a foregone conclusion, event contracts traded on Robinhood indicated about a 30% chance of no interest rate cut in December. That’s edged up to 33% after today’s commentary.

(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company subject to certain legal and regulatory restrictions. Event contracts trading is offered by Robinhood Derivatives, LLC, a registered futures commission merchant with the CFTC.)

Here’s a smattering of Bloomberg headlines on today’s Fedspeak.

From Kansas City Fed President Jeffrey Schmid, who put out a release explaining his dissent at the last meeting in favor of no cut:

*FED’S SCHMID: JOB MARKET LARGELY IN BALANCE, INFLATION TOO HIGH

*SCHMID: MONETARY POLICY SHOULD LEAN AGAINST DEMAND GROWTH

From Dallas Fed President Lorie Logan (a nonvoting member of the Fed), speaking today at a conference:

*FED’S LOGAN: WOULD’VE PREFERRED TO HOLD RATES STEADY THIS WEEK

*LOGAN: FED ALREADY MITIGATED EMPLOYMENT RISK WITH SEPTEMBER CUT

*LOGAN: I WOULD FIND IT DIFFICULT TO CUT RATES AGAIN IN DECEMBER

Atlanta Fed President Raphael Bostic (also a nonvoting member of the Fed), speaking on a panel at that same conference:

*BOSTIC: EVENTUALLY GOT BEHIND THIS WEEK’S RATE CUT

*BOSTIC: PREFERABLE TO MOVE SLOWER WHEN SO LITTLE CLARITY

*BOSTIC: GLAD POWELL SAID DEC. CUT IS “FAR FROM” FOREGONE MOVE

Cleveland Fed President Beth Hammack (another nonvoting member), in comments during that panel with Bostic:

*HAMMACK: I WOULD’VE PREFERRED TO HOLD RATES STEADY THIS WEEK

*HAMMACK: I THINK WE’RE RIGHT AROUND MY ESTIMATE OF NEUTRAL

*HAMMACK: FED’S POLICY IS BARELY RESTRICTIVE, IF AT ALL

*HAMMACK: INFLATION BROADER THAN TARIFFS; CORE SERVICES STRONG

What explains the relatively limited shift in prediction markets amid this cacophony of hawkish commentary?

First, some Federal Reserve officials are more important than others. At the current time, Chair Powell and Governor Waller are by far the most influential, with New York Fed President John Williams a fair bit behind the duo. These remarks are coming from less prominent Fed officials.

Secondly, we know that in the September dot plot, nine Federal Reserve officials thought the policy rate should end the year at its current level (3.875%) or higher, and 10 officials thought it should be lower — contingent on the economic outlook evolving broadly as they had anticipated at the time.

Unless these aforementioned comments come from members that have experienced a meaningful shift in views on how the economy has progressed from mid-September through this week, that means we’ve effectively identified four of the more hawkish members of the Federal Reserve. Three of these individuals will not be voting at the December meeting.

If the above is true, doing some light math, that would mean, at most, there are a maximum of six Fed officials out of 12 voting members who are predisposed to not cut interest rates in December based on the September dot plot.

To unpack: 19 Fed officials, 12 of which have a vote, with at least three of the other seven who seem to oppose further cuts (based on today’s remarks), and nine who thought back in September that rates should be no lower than they are now.

Of course, minds may have changed during the inter-meeting period already, and may change even more before the December decision. But right now it would be a fair guess that based on the September dot plot and the revealed preferences provided today, it’s still more likely that Fed officials have a modest tilt toward delivering a December rate cut.