US Markets
Monday, September 23rd, 2024 3:31 pm EDT
Key Points
- Slowing Pace of Rate Cuts: Minneapolis Fed President Neel Kashkari expects the Federal Reserve to slow down future rate cuts after a significant 50 basis point reduction. The Fed will likely move toward smaller quarter-point adjustments unless economic data changes drastically.
- Balancing Inflation and Labor Market: The 50 basis point cut was seen as necessary to shift the Fed’s policy focus from controlling inflation to addressing concerns about a weakening labor market, while ensuring the labor market remains strong.
- Diverging Fed Views on Rate Cuts: While Kashkari advocates a cautious approach, other Fed officials like Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee suggest that more aggressive or continuous rate cuts may be necessary, depending on the inflation and labor market outlook.
Minneapolis Federal Reserve President Neel Kashkari commented on the pace of interest rate cuts following the Federal Open Market Committee’s (FOMC) recent half percentage point reduction. He indicated that the central bank is likely to slow down the pace of future cuts, moving toward more traditional quarter-point reductions unless significant changes in economic data occur. The FOMC’s decision to reduce rates by 50 basis points marked the first such cut since the early days of the COVID-19 pandemic and was aimed at recalibrating monetary policy from fighting high inflation to addressing a softening labor market.
Kashkari emphasized the importance of maintaining a strong labor market while continuing to work towards the Federal Reserve’s goal of 2% inflation. He believes that while progress has been made on inflation, the Fed is not yet ready to declare victory and must remain vigilant to potential risks. Although Kashkari is not a voting member of the FOMC until 2026, his views reflect the general direction of the Fed’s monetary policy strategy.
The recent rate cut signaled the Fed’s intention to bring interest rates closer to a “neutral” level, which neither stimulates nor restricts economic growth. Current Fed projections suggest that the neutral rate is around 2.9%, compared to the current target range of 4.75% to 5%. Kashkari’s cautious approach contrasts with other Fed officials, such as Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee, who have suggested a more aggressive stance on normalizing monetary policy.
Bostic noted that inflation and the labor market have improved faster than expected, leading him to advocate for quicker rate adjustments. He believes the Fed is now in a better position to adjust its policy based on future developments, whether that means slowing the pace of easing if inflation resurfaces or accelerating cuts if the labor market weakens further. Goolsbee, on the other hand, anticipates a more continuous path of rate reductions, with significant cuts likely over the next year as the Fed balances its dual mandate of controlling inflation and supporting full employment.
Market expectations, as reflected by the CME Group’s FedWatch tool, show a relatively even chance of a quarter- or half-percentage point cut at the Fed’s November meeting. There is a stronger likelihood of a larger cut in December, bringing the total expected reductions to 0.75 percentage points by the end of the year. Overall, the Fed’s actions and statements reflect its careful balancing act between curbing inflation and supporting a still-healthy labor market, while maintaining flexibility in its policy decisions based on evolving economic conditions.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/09/23/minneapolis-fed-president-kashkari-sees-slower-pace-of-rate-cuts-ahead.html
