NVIDIA couldn't save the US stock market, can he? Why this Federal Reserve official's speech is very important

The recent fluctuations in the U.S. stock market show that NVIDIA was unable to save the market, but a senior Federal Reserve official seems to have done so.

NVIDIA's quarterly performance and guidance released after the market closed on Wednesday were impressive, yet they failed to prevent a significant drop in the U.S. stock market. On Thursday, the market opened high but fell sharply during the day, with the S&P 500 index rising 1.9% in the morning before closing down nearly 1.6%. However, after John Williams, the president of the New York Federal Reserve and the "third-in-command" of the Federal Reserve, hinted that the Fed might cut interest rates again in December, the U.S. stock market rebounded on Friday, with all three major indices rising over 1% at midday. U.S. Treasury prices also accelerated their rise, with yields declining for the second consecutive day.

Williams stated on Friday that he believes there is room for further adjustments to interest rates "in the near term." Investors quickly interpreted this as a strong signal for a rate cut in December, with the market's expectations for a December rate cut rising from about 40% before Williams' remarks to over 70%.

Commentators noted that the sharp decline in the U.S. stock market on Thursday reflected investors' concerns about the artificial intelligence (AI) bubble, geopolitical risks, and the uncertainty surrounding the Fed's policy outlook. The market remained unstable on Friday morning until Williams' speech turned it around. His remarks were seen as a policy signal from the highest leadership of the Federal Reserve, injecting critical confidence into the market and timely preventing a potential further crash.

Williams' statements were a timely boost for the U.S. stock market. As of Thursday's close, the S&P 500 index had fallen 4.4% since November, on track to record its worst monthly performance since March and the worst November performance since 2008. Mark Hackett, chief market strategist at Nationwide, commented, "The broader narrative has not broken; it is simply being tested."

Why Williams' Speech Was So Critical

The communication from the Federal Reserve, especially from its top leadership, is rarely coincidental. The messages from the Fed Chair, Vice Chair, and the president of the New York Fed, known as the "three giants," are carefully considered, aiming to balance clear policy intentions with avoiding excessive market reactions.

Krishna Guha, head of global policy and central bank strategy at Evercore ISI, pointed out in a research report,

"'In the near term' is somewhat ambiguous, but the most obvious interpretation refers to the next meeting (i.e., December). While Williams may be expressing a personal view, signals from the three giants on key policy issues are almost always approved by the Fed Chair. Issuing such a signal without Powell's endorsement would be a serious professional misstep."

Williams' remarks came at a sensitive time when the Federal Reserve is facing unusual divisions. On one hand, some officials believe that policy is still suppressing growth and that there is room for adjustment; on the other hand, some officials are concerned about inflation, believing that economic growth is robust and that further rate cuts are unnecessary.

On the day of Williams' speech, two other Federal Reserve officials also spoke out. Susan Collins, president of the Boston Federal Reserve, who has voting rights at this year's FOMC meeting, and Lorie Logan, president of the Dallas Federal Reserve, who will have voting rights at next year's FOMC meeting, both expressed hesitation about further rate cuts. Collins voiced concerns about inflation Logan's stance is more hawkish, stating that she is even uncertain whether she would support the previous two rate cuts.

Williams May Have Saved the Market

Williams' remarks likely prevented a potential sell-off in the market on Friday. After a heavy blow to the U.S. stock market on Thursday, investors were concerned about another significant drop on Friday. The market showed volatility in the morning session, but after Williams' speech, stock index futures quickly turned upward.

Guha stated:

"Williams' intervention came after several other Federal Reserve officials expressed reservations about a rate cut in December, which may indicate they recognize that the controversy over a December rate cut is evolving into a governance crisis for the Fed, necessitating some decision-making space for Powell."

BMO Capital Markets U.S. interest rate strategist Vail Hartman pointed out:

"Williams' comments are crucial because he is one of the centrist voters who may ultimately decide the outcome of the December rate decision. It was previously unclear what his stance was regarding the December meeting."

Cleveland Fed President Beth Hammack, who will have voting rights at the FOMC meeting next year, stated to the media on Thursday that she also believes the policy is "almost non-restrictive," suggesting she may oppose a rate cut.

The December meeting of the Federal Reserve may become one of the most unusual in years. Officials not only disagree on how to balance the risks of slowing job growth with persistent inflation issues, but also face delays in employment and inflation data due to the government shutdown. In this context, Williams' remarks provide the market with a rare policy direction guidance