Senior Fed Official Dovish: Expected to cut another 50 basis points within the year, labor market has not yet "flashed red light"

In the second week of the "big opening" of the first rate cut, senior officials of the Federal Reserve have successively turned dovish.

On September 23, local time, Neel Kashkari, a 2026 FOMC voter and President of the Minneapolis Fed, stated in an article that after the Fed cut rates by 50 basis points last week, the policy still leans tight, expecting a further 50 basis point rate cut by the end of the year.

Kashkari mentioned that he supported the decision to cut rates by 50 basis points last week, as inflation has significantly cooled and is close to the Fed's 2% target, while the labor market is beginning to show signs of weakness.

The balance of risks has shifted from rising inflation to the risk of further weakening in the labor market, hence the need to lower the federal funds rate.

Later, Raphael Bostic, President of the Atlanta Fed, also stated that he fully supported the 50 basis point rate cut in September. He believed that the Fed has made "substantial progress" in fighting inflation, while risks in the labor market have increased, but the "red light" has not yet been lit.

Kashkari: Supports 50 Basis Point Rate Cut in September, Risks of Weak Labor Market Intensifying

Kashkari has always been seen as one of the more dovish officials within the Federal Reserve. Prior to the Fed's September rate decision, Kashkari hinted that the labor market may be excessively weak, making a rate cut in September a suitable move.

Kashkari also stated that although there is uncertainty in the underlying economic strength of the U.S., growth and consumer spending remain strong, expecting a further 50 basis point rate cut by the end of the year.

He forecasted the Fed's policy rate to be 4.4% by the end of 2024, further dropping to 3.4% by the end of 2025, consistent with the median projection of Fed officials last week. The future rate path will depend on the overall performance of the upcoming data.

Kashkari also mentioned that the neutral rate may have risen.

The longer this economic resilience continues, the more signals I get that the temporary rise in the neutral rate may actually be more structural.

He expects the long-term federal funds rate to be around 2.9%, higher than the 2.5% forecasted in March. At last week's meeting, Fed officials' median forecast for this rate also increased, from 2.5% a year ago to 2.9%.

Bostic: Inflation Declining Faster Than Expected, Labor Market Has Not Yet Lit the Red Light

In a speech on Monday, Bostic stated that data shows inflation is declining faster than he expected, which is encouraging to him.

He pointed out that in the three months ending in July, core PCE (excluding volatile food and energy costs) inflation rose at an annualized rate of 1.7%, well below the Fed's 2% inflation target. Additionally, core service prices excluding housing - one of the stubborn culprits of U.S. inflation - are also cooling down.

Bostic also mentioned that as the unemployment rate rises, hiring slows, and job vacancies decline from their peak in 2022, the labor market is weakening, but not weak. However,

The labor market has not yet lit the red light for me.

Earlier, two heavyweight FOMC voters spoke out

Last week, the Federal Reserve unexpectedly cut interest rates by 50 basis points, with the dot plot showing that Fed officials predict a median of another 50 basis points cut in the remaining two meetings this year.

Following that, two heavyweight FOMC voters and Fed governors, Waller and Bowman, both made speeches, suggesting a possible adjustment in the pace of Fed rate cuts.

Waller stated that the latest inflation data was "softer than expected," and if the economy evolves roughly as expected, there may be 25 basis points cuts in both December this year and January next year. Waller supported a 50 basis points cut in the September meeting.

Compared to Kashkari and Waller, Bowman appeared more cautious.

Bowman had opposed a 50 basis points cut in the September meeting, becoming the first Fed governor to vote against a rate policy decision since 2005.

She believed that a 25 basis points cut in September was more prudent, stating that the U.S. economy remains "strong," the labor market is "close to full employment," but also emphasized that the inflation rate remains above the Fed's 2% target.

Bowman mentioned that it is important to avoid signaling too early that the Fed has "conquered inflation" and to prevent further demand stimulus. Opting for a 25 basis points cut can avoid the risk of bringing about "excessive demand stimulus."