Minneapolis Federal Reserve President Neel Kashkari said Monday he expects policymakers to slow the pace of interest rate cuts after last week’s half-percentage-point reduction.
“I think after 50 basis points, we’re still in a tight net position,” Kashkari said in a CNBC “Squawk Box” interview. “So I was comfortable taking a bigger first step, and then as we go along, I expect, on balance, that we’ll probably take smaller steps unless the data changes materially.”
In a decision that came as at least a mild surprise, the Federal Open Market Committee, which sets rates, voted on Wednesday to lower its benchmark overnight lending rate by half a percentage point, or 50 basis points. It was the first time the committee had cut that much since the early days of the Covid pandemic and, before that, the 2008 financial crisis. A basis point is equivalent to 0.01%.
While the move was unusual from a historical perspective, Kashkari said he felt it was necessary to have rates reflect a recalibration of policy away from a focus on overheated inflation and toward more concern about a weakening labor market.
His comments indicate the central bank may return to more traditional measures in quarter-point increments.
“Now, we still have a strong, healthy labor market. But I want to keep it a strong, healthy labor market, and a lot of the recent inflation data is coming in looking very positive that we’re getting back to 2%,” he said.
“So I don’t think you’ll find anyone at the Federal Reserve who says mission accomplished, but we are keeping an eye on the risks that are most likely to materialize in the near future,” he said.
As part of the committee’s rotating schedule, Kashkari will not have a vote on the FOMC until 2026, although he will have a say in policy meetings.
Wednesday’s rate cut signaled the Fed is on track to normalize rates and bring them back to a “neutral” position that neither boosts nor constrains growth. In their latest economic projections, FOMC members indicated the rate is likely to be around 2.9%; the current federal funds rate is between 4.75% and 5%.
Speaking separately on Monday, Atlanta Fed President Raphael Bostic indicated he expects the Fed to move aggressively to return to a neutral rate.
“The progress in inflation and the cooling of the labor market have come much more quickly than I anticipated in early summer,” said Bostic, who votes on the FOMC this year. “At this point, I envision monetary policy normalization sooner than I thought would be appropriate even a few months ago.”
Bostic also noted that Wednesday’s cut puts the Fed in a better position in terms of monetary policy, as it can slow the pace of easing if inflation starts to peak again, or accelerate it if the labor market slows further.
Market prices anticipate a relatively equal chance of the FOMC cutting by a quarter or half a percentage point at its November meeting, with a higher probability of a bigger move in December, for a total of 75 basis points in further reductions by the end of the year, according to CME Group’s FedWatch measure.
