“Kashkari noted that the balance of risks has shifted from higher inflation to the risk of further labor market weakness and that a rate cut is warranted.”
Minneapolis Fed President Neel Kashkari said in an article that he supports the Fed's large interest rate cut last week and supports another 50 basis point cut before the end of the year.
In a post published on his bank’s website on Monday, Kashkari noted that inflation has cooled substantially, approaching the Fed’s 2% target. At the same time, the labor market is beginning to show signs of softening, he wrote.
“The balance of risks has shifted from higher inflation to the risk of further labor market slack, which would necessitate a reduction in the federal funds rate,” Kashkari wrote.
His comments came after Fed policymakers decided last week to cut interest rates by 50 basis points, an aggressive move by the central bank to shift from fighting inflation to supporting the labor market. The median forecast released by Fed officials last week was for another 50 basis point cut in rates over the two remaining meetings this year.
While Kashkari is not a voting member of the Federal Open Market Committee (FOMC) this year, he participates in discussions on monetary policy.
On September 20, Federal Reserve Board Governor Waller said that unexpectedly favorable inflation data in recent weeks prompted him to support a 50 basis point rate cut.
That contrasted with Governor Bowman, who said on Friday she voted against the decision because she remains concerned about above-target inflation, becoming the first Fed governor to dissent from a rate move since 2005.
Kashkari said that while there is uncertainty about the underlying strength of the U.S. economy, growth and consumer spending remain strong. He also said the neutral interest rate, where the Fed's policy neither suppresses nor stimulates the economy, may have risen.
“The longer this economic resilience persists, the more I think the temporary rise in the neutral rate may actually be more structural,” Kashkari wrote.
He expects the long-term federal funds rate to be around 2.9%, up from the 2.5% he predicted in March. The median estimate of the rate by all Fed officials has also risen, with the "dot plot" released last week showing that officials' estimates of the neutral rate have risen to 2.9% from 2.5% a year ago.
Kashkari has published a series of articles since the Fed began actively tightening policy to curb inflation in 2022. In his last article, written in May, Kashkari said policymakers are likely to keep interest rates at current levels "for some time" until they are confident that inflation is moving toward their goals.
Atlanta Fed President Bostic also said on Monday that the Fed's rate-cutting cycle, which began with a large cut, will help move interest rates closer to a neutral level as the risks between inflation and employment become more balanced.