Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects to lower interest rates by smaller, quarter-point moves at each of the central bank’s two remaining meetings this year.

“After 50 basis points, we’re still in a net tight position so I was comfortable taking a larger first step,” Kashkari said on CNBC Monday. “As we go forward, I expect, on balance, we will probably take smaller steps unless the data changes materially.”

Kashkari added that quarter-point reductions at both the November and December meetings are a “reasonable starting point.”

The Minneapolis Fed chief’s comments on CNBC detailing his views on further rate reductions followed an essay published earlier Monday in which Kashkari said he supported the Fed’s outsize cut last week. 

Inflation has cooled significantly and is close to the Fed’s 2% target, he wrote. At the same time, the labor market is starting to show signs of weakness.

“The balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate,” Kashkari wrote in the essay.

His comments come after last week’s decision by Fed policymakers to cut rates by a half-point, an aggressive start to their shift away from fighting inflation and toward bolstering the labor market. The median forecast of Fed officials also released last week was for another 50 basis points of cuts over their two remaining meetings this year.

A chart in the essay published earlier Monday outlined Kashkari’s annual projections. He penciled in a 4.4% federal funds rate by year end, the graphic showed. He sees the rate further declining to 3.4% by the end of 2025 and to 2.9% by the end of 2026 — both in line with the median forecast of Fed policymakers in September.  

While not a voter on this year’s Federal Open Market Committee, Kashkari participates in monetary policy deliberations. 

Path Forward

On Sept. 20, Fed Governor Christopher Waller said he was moved to support the half-point cut by unexpectedly favorable inflation data in recent weeks.

That contrasted with Governor Michelle Bowman, who said Friday she voted against the decision because she remains concerned about above-target inflation. Bowman became the first Fed governor to dissent against an interest-rate move since 2005.

Kashkari said that while there are uncertainties about the strength of the underlying US economy, growth and consumer spending remain strong. He also said the neutral rate of interest, where Fed policy is neither weighing on nor stimulating the economy, has likely risen. 

“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,” Kashkari wrote. 

He forecasts the long-run fed funds rate at around 2.9%, up from the 2.5% he forecast in March. The median estimate among all Fed officials for this rate has similarly increased, to 2.9% at last week’s meeting from 2.5% a year ago.

Kashkari has published a series of essays since 2022, when the Fed began tightening policy aggressively in order to bring down inflation. In his last such piece, written in May, Kashkari said policymakers would likely keep interest rates where they were “for an extended period of time” until they were certain inflation was on track to their target.

Atlanta President Raphael Bostic also said Monday that starting the central bank’s cutting cycle with a large move will help bring interest rates closer to neutral levels as the risks between inflation and employment become more balanced.

Chicago Fed President Austan Goolsbee said Monday the central bank needed to lower rates “significantly” to protect the US labor market.