In an essay, Minneapolis Fed President Neel Kashkari provided insight into his support for last week’s 50bps rate cut, despite not having a vote on the decision.
“We have made substantial progress bringing inflation back down toward our 2 percent target, and the labor market has softened,” he said. Kashkari noted that the balance of risks has “shifted away from higher inflation” and toward risk of further weakening of the labor market, justifying the need for a lower federal funds rate.
He acknowledged that even after the substantial 50bps reduction, “the overall stance of monetary policy remains tight.”
Kashkari further pointed out that the economy’s unexpected resilience despite high policy rates might indicate a temporary or even structural rise in the neutral rate. “The longer this economic resilience continues, the more signal I take that the temporary elevation of the neutral rate might in fact be more structural,” he explained.
Looking ahead, Kashkari highlighted that future policy decisions would depend on incoming data related to economic activity, labor markets, and inflation.
