After keeping interest rates steady for more than a year, the Fed finally started a rate-cutting cycle and made its first rate cut last week.
As expectations of further cuts increased following the 50 basis point cut, Minneapolis Fed President Neel Kashkari said he expects interest rates to be 4.4% by the end of 2024 and 3.4% by 2025.
I Expect Another 50 Basis Point Interest Rate Cut from the FED by the End of 2024!
Speaking on CNBC's Squawk Box, Kashkari said he supports the Fed cutting interest rates by 50 basis points, saying it was “the right decision” given the significant progress made in inflation and the risk of rising unemployment.
Kashkari, who is not among the Fed's 12 voting policymakers this year, was until recently among the Fed's most hawkish policymakers, arguing that the Fed's monetary policy would likely need to remain tight for longer to curb inflation.
However, Kashkari reversed his hawkish stance, saying the half-point rate cut was a good first step and that despite the aggressive move, the overall level of interest rates was still economically restrictive.
Kashkari stated that he predicted that the FED would make another 50 basis point interest rate cut in 2024 and that he expected the FED to slow down the rate of interest rate cuts, saying:
“Inflation has fallen significantly and is moving closer to the Fed's 2% target. At this point, the balance of risks has shifted away from higher inflation and toward the risk of further weakening of the labor market, which would require a lower federal interest rate.
But I think there will be less need for aggressive discounting like the current one.
“I support quarter-percentage point rate cuts at each of the last two meetings of the year, and I think we will probably take smaller steps unless the data changes significantly.”
Economy Returns to Normal Faster Than Expected!
Apart from Kashkari, Atlanta FED President Raphael Bostic also made important statements.
Bostic, who voted on this year's FOMC, said he expects the Fed to move aggressively to return to a neutral interest rate, hinting at the possibility of a rapid rate cut in the coming months.
“Progress on inflation and labor market cooling has come much faster than I had imagined at the beginning of the summer.
“I now expect monetary policy to normalize sooner than I had predicted a few months ago.”
Bostic said the Fed is taking the right step, adding that it could slow down the pace of interest rate cuts if inflation rises again or accelerate the reductions if the labor market slows down further.
“Inflation has fallen faster than I expected, and the latest data strengthen my belief that the U.S. economy is on a sustainable path toward price stability,” Bostic said. “It is now time to shift the direction of monetary policy to better reflect a more balanced set of risks.”
*This is not investment advice.