On the other hand, Governor Michelle Bowman has expressed concern about moving too fast. While she agrees inflation has slowed, Bowman believes inflation remains above the Fed’s 2% target, and the September rate cut may have sent the wrong signal. She advocated for a smaller, 25-basis-point reduction, warning that too large a cut could undermine the Fed’s credibility.
Waller vs. Bowman: Diverging Views
Fed Governor Christopher Waller has emerged as one of the strongest advocates for larger cuts, recently stating that inflation is “softening much faster” than expected. This, he argues, justifies the need for more aggressive easing to prevent inflation from undershooting its target. Bowman, in contrast, worries that inflation is still near 2.5% annually and prefers a more cautious approach, suggesting that cutting rates too fast may be premature.
This divide within the Fed is making it difficult for traders to predict the Fed’s next move. The CME Group’s FedWatch tool indicates that traders are almost evenly split between expecting another 50-basis-point cut or a smaller 25-basis-point cut at the Fed’s November meeting.
Impact on Market Sentiment
With Powell scheduled to speak today, traders will closely watch for signals on how he plans to balance these conflicting viewpoints. Powell has previously emphasized data dependency, and upcoming inflation and labor market reports will likely influence the decision. Waller’s comments have led to increased bets on a larger rate cut, but Bowman’s concerns suggest that the Fed could opt for a more measured approach.
Market Outlook
Traders are likely to remain cautious until Powell’s speech provides more clarity. If Powell hints at more aggressive cuts, markets may turn bullish on bonds and stocks, anticipating easier financial conditions.