Williams to Join Alumni Panel After CPI Data Lifts Rate Hike Odds

John Williams, president of the New York Fed, is slated to join a panel at a UC Berkeley Alumni Salon gathering in New York on Thursday at 6:30 p.m. Eastern (2330 GMT).

The event's format is significant. The discussion is moderated and takes place at an alumni gathering, not a formal policy address, which means a prepared text might not be issued. Market-moving statements are more probable in response to audience questions about the economic outlook than from any scripted remarks.

The timing is notable. Williams, who is a permanent FOMC voter and vice chair of the committee, appears two days after October's CPI data came in hotter than predicted. Headline consumer prices increased 0.4% month-over-month versus a 0.3% forecast, and core prices rose 0.3% against an expected 0.2%. The BLS refrained from publishing 12-month rates because of the lapse in government funding.

Financial markets adjusted rapidly. Following the CPI release, CME FedWatch determined the probability of a 25-basis-point rate increase at the December 9 meeting to be roughly 85% to 90%. Prior to the data release, the probability of a 50-bp move was near zero; after the release, it climbed to approximately 10% to 15%. While a half-point rate hike remains improbable and some analysts view it as a high bar, the possibility is now part of the discussion.

Fed Governor Waller has stated his preference for a quarter-point rate hike in December, and indicated that he might opt for a half-point increase if inflation proves hotter than forecast.

In a speech last week in Frankfurt, Williams described inflation as 'absolutely too high'. He also expressed support for the Fed's position that the current period is appropriate for collecting information on price risks.

Key points for observers: will Williams treat a December rate rise as the baseline, and will he resist a 50bp movement or keep the possibility open. For the US dollar and Treasury yields, the main risk is any indication that he is receptive to the larger increase.