Fed's Kashkari Eyes Modest Rate Cuts But Leaves Door Open for Faster Action

Wallstreet InsightMonday, Oct 21, 2024 10:02 pm ET

1min read

On Monday, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, indicated that he is currently inclined towards slower rate cuts in the coming quarters, but if the job market deteriorates sharply, he might advocate for a faster pace of rate cuts.

The Federal Reserve announced a rate cut of 50 basis points last month, lowering the target range for the federal funds rate to 4.75%-5.00%, thus initiating the much-anticipated rate-cutting cycle. The market currently widely expects that the Federal Reserve will cut rates by 25 basis points at the November rate meeting.

Kashkari said on Monday at an event in Wisconsin that he supported the policymakers' decision to cut rates by 50 basis points last month but expects smaller rate cuts at future meetings. The Federal Reserve's monetary policy action last month surprised many, with some critics arguing that policymakers should not have cut rates by 50 basis points, but should have taken a smaller rate cut.

"Right now I am forecasting some more modest cuts over the next several quarters to get to something around neutral, but it's going to depend on the data," Kashkari said. The so-called "neutral rate" refers to the interest rate level that neither stimulates nor inhibits the economy.

Kashkari believes that the current interest rate level is still applying the brakes to the economy, but he also said that the strong performance of the U.S. economy during the Fed's rate hikes and since the rate cut last month indicates that the neutral rate today might be higher than in the past.

Kashkari once again emphasized the Federal Reserve's dual mandate, which is to keep the labor market strong while bringing inflation back to the target level of 2%.

"Regarding faster rate cuts, "Kashkari said, "If we saw a weakening, like real evidence that the labor market is weakening quickly, then that would tell me, as one policymaker, 'Hey, maybe we ought to bring down our interest rate more quickly than I currently expect.'"

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