The stock market just had its best rate cut scenario revived

It’s looking like investors might get their wish this holiday season.

Stocks jumped on Friday on comments from a top Federal Reserve official who said the economic situation supports more rate cuts from the central bank.

The odds that the Fed will cut interest rates another 25 basis points at its December policy meeting nearly doubled on Friday after New York Fed President John Williams said that he saw room to adjust interest rates further.

The odds that the Fed will trim its target rate to 3.5%-3.75% climbed to over 70%, from about 39% on Thursday.

“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” Williams said at an event in Chile on Friday. “Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals.”

For the stock market, it’s revived one of the best-case scenarios at a time when investors are scanning the horizon for positive catalysts that could spark a year-end rally.

Major indexes jumped after the comments. The Dow, which whipsawed more than 1,000 points Thursday, was up more than 250 points in the early morning.

Here’s where US indexes stood shortly after the 9:30 a.m. opening bell on Friday:

• S&P 500: 6,571.32, up 0.5%
• Dow Jones Industrial Average: 45,906.59, up 0.34% (+154 points)
• Nasdaq composite: 22,160.65, up 0.33%

Williams’ remarks come at a choppy time in markets, with concerns lingering over the health of the AI trade.

A December rate cut, meanwhile, had been in question this week as investors realized they would be getting an incomplete look at the economic data for October.

The labor market, a key focus for investors, also added 119,000 jobs in September. That was more than economists expected, which suggests that the central bank may not have as much room to cut interest rates as markets previously believed.

Fed officials have been split on the rate cut outlook going into next year, with some officials striking a more hawkish tone than others.

On Monday, Fed Gov. Christopher Waller, who is on the short-list to be the next Fed Chairman, said he supported another interest rate cut in December to prop up the labor market.

Last week, Boston Fed President Susan Collins said she would have a “high bar” for supporting rate cuts going forward.