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Fed’s Kashkari predicts reasonable’ December rate cut.

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File Photo: Federal Reserve System

File Photo: Federal Reserve System

On Sunday, Minneapolis Federal Reserve President Neel Kashkari said it’s a “reasonable prediction” that the bank will drop rates once this year, in December.
“We need to see more evidence to convince us that inflation is well on our way back down to 2%,” Kashkari told CBS’ “Face the Nation” program.
Last week, the Fed maintained its benchmark policy rate at 5.25%–5.50%, as it has since July, to exert economic pressure and lower inflation. It also provided predictions, showing that all 19 U.S. central bankers expected one interest rate drop this year.

“We’re in a very good position right now to take our time, get more inflation data, and get more data on the economy and the labor market before we have to make any decisions,” Kashkari said. “We’re in a strong position, but if you just said there’s going to be one cut, which is what the median indicated, that would likely be toward the end of the year.”
Kashkari, who is more cautious about relaxing monetary policy than many of his colleagues, did not predict how many rate decreases would occur.

It amazed him how well the U.S. labor market performed even while the Fed rapidly hiked borrowing prices in 2022 and 2023, but he predicts more cooling.
“I hope it’s modest cooling, and then we can get back down to more of a balanced economy,” she said.
April’s year-over-year personal consumption expenditures price index inflation was 2.7%, the Fed’s objective. The Fed wants 2%.

In May, the unemployment rate rose to 4%, the highest since March 2022 but still below what most Fed policymakers consider sustainable.
Kashkari suggested the Fed should lower inflation to help the housing sector overcome high borrowing prices.
“If we simply cut interest rates to try to support home ownership right now, that would probably push up the price of houses, and it actually wouldn’t lead to any better affordability,” she said.

“The best thing we can do is do our job—get inflation back down to our target—and then, hopefully, the supply side of the economy can step in to build the homes that Americans need.”


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