Minneapolis Fed President Kashkari sees a slower pace of rate cuts going forward

Minneapolis Federal Reserve President Neel Kashkari said Monday that he expects policymakers to slow the pace of interest rate cuts after last week’s half-percentage-point cut.

“I think after 50 basis points, we’re still in a tight position,” Kashkari said in a CNBC “Squawk Box” interview. “So I felt comfortable taking a bigger first step, and then as we go forward, I generally expect we’ll probably take smaller steps unless the data changes significantly.”

In a decision that came as at least a mild surprise, the rate-setting Federal Open Market Committee voted Wednesday to cut the benchmark overnight lending rate by half a percentage point, or 50 basis points. It was the first time the commission has cut this much since the start of the Covid pandemic and before that the financial crisis of 2008. One basis point is equal to 0.01%.

While the move was unusual from a historical perspective, Kashkari said he believed the rates needed to reflect a recalibration of policy from a focus on overheating inflation to more concern about a weakening labor market.

His comments indicate that the central bank could return to more traditional moves in quarter-point increments.

“Right now, we still have a strong and healthy labor market. But I want to keep a strong and healthy labor market, and a lot of the recent inflation data looks very positive that we’re on the way back to 2 percent,” he said.

“So I don’t think you’re going to find anyone at the Federal Reserve declaring mission accomplished, but we are paying attention to what risks are most likely to materialize in the near future,” he said.

As part of the committee’s rotating schedule, Kashkari won’t get a vote on the FOMC until 2026, though he does have a say during policy meetings.

Wednesday’s rate cut signaled that the Fed is on track to normalize rates and return them to a “neutral” stance that neither pushes nor restricts growth. In their latest economic forecasts, FOMC members indicated that the rate is likely to be around 2.9%; the current food fund rate is targeted between 4.75% and 5%.

Speaking separately on Monday, Atlanta Fed President Raphael Bostic indicated he expected the Fed to move aggressively to return to a neutral rate.

“The progress on inflation and the cooling of the labor market has come much faster than I imagined at the beginning of the summer,” said Bostic, who is voting on this year’s FOMC. “Right now, I envision monetary policy normalizing sooner than we thought would be appropriate even a few months ago.”

Bostic also noted that Wednesday’s cut puts the Fed in a better position on policy, meaning it can slow the pace of easing if inflation starts to rise again, or speed it up if the labor market slows further.

Market prices anticipate a relatively equal chance that the FOMC will cut by either a quarter percentage point or half a percentage point at its November meeting, with a higher probability of a bigger move in December, for a total of 0, 75 percentage points in additional discounts until the end. of the year, according to CME Group’s FedWatch measure.