Fed president expecting smaller cuts after half-point reduction

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Monday that consumers can expect smaller interest rate cuts after last week’s significant half-point reduction. 

“I was comfortable taking a larger first step, and then as we go forward, I expect, on balance, we will probably take smaller steps unless the data changes materially,” Kashkari said on CNBC.

“Ultimately, we want to get back to a neutral policy stance where the economy is in balance and we’re not pushing the economy one way or the other. And this was just a larger first step to get us going,” Kashkari added.

The Federal Open Market Committee last week decided to decrease the benchmark overnight borrowing rate by 50 basis points, citing “the progress on inflation” and “the balance of risks” as factors in its reasoning. 

It was the first time the committee cut rates since the COVID-19 pandemic.

“I think if you look, we’ve held rates at a pretty high level for an extended period of time, longer traditionally than history. This is just acknowledging, let’s take a step now toward neutral, recognizing that we’re still tight,” Kashkari said during the CNBC interview. 

“Certainly, we were late — and I was late — in raising,” he added. “We always want to learn from our mistakes, and we don’t want to repeat those. That’s not what’s driving this move, but we are aware of the mistake that I think that we collectively made in holding rates a little bit low for a little bit too long.”

Kashkari also pushed back on the notion the decision to cut rates was influenced by the upcoming presidential election in November.

“I think all of my colleagues have said, it’s simply not a factor in our deliberation,” Kashkari said.