Three Federal Reserve officials emphasized on Monday the need for a slow and steady approach to lowering interest rates, giving the central bank time to navigate uncertainties surrounding the job market and inflation.
Kansas City Fed President Jeff Schmid advocated for a “cautious and gradual” reduction in rates, while Minneapolis Fed President Neel Kashkari signaled his expectation of “modest cuts over the next quarters.” Dallas Fed President Lorie Logan reiterated her stance that rates should decrease “gradually,” warning of the potential for further inflationary pressures and a weakening job market.
Speaking at the Securities Industry and Financial Markets Association’s annual meeting in New York, Logan stated, “If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more neutral level can help manage the risks and achieve our goals.”
Schmid, delivering remarks in Kansas City, Mo., echoed this sentiment, noting, “My preference would be to avoid outsized moves.” He added that a slower pace of rate cuts would allow the Fed to observe the economy’s reaction and determine when rates are neither overly restrictive nor stimulative.
The Federal Reserve began its rate-cutting cycle last month with a half-percentage-point reduction, the first in over four years, and has signaled more cuts may follow in the next 12 to 18 months. Fed officials project two additional rate cuts this year.
The next Federal Reserve meeting is set for November 6-7, with traders currently anticipating a 25-basis-point cut.
At the Fed’s last meeting, there was division among officials over the size of the initial rate cut, but many now support a measured approach moving forward. Fed Governor Chris Waller recently called for “more caution” in future rate reductions.
Despite a stronger-than-expected jobs report for September, Logan cautioned that downside risks in the labor market remain, adding that inflation, although cooled, still poses risks of a resurgence. Her warning follows an unexpectedly high inflation reading for September, which led some to question whether the Fed might slow or pause its planned rate cuts.
