“The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” Kashkari said in an interview with the WSJ.
Kashkari’s remarks represent a shift from his stance in June, when he suggested that a rate cut might not be necessary until later in the year. The recent increase in the unemployment rate, which rose to 4.3% in July from 3.7% at the beginning of the year, has raised concerns about the potential for an undesirable economic slowdown.
Kashkari noted that if the labor market hadn’t shown signs of weakening—if the unemployment rate had remained between 3.7% and 3.8%—he likely wouldn’t be considering whether to cut rates at this time. However, with progress on inflation and some troubling signs in the labor market, the conversation has changed.
Despite this, the Fed Minneapolis president expressed caution about the size of potential rate cuts, stating that he sees no reason to lower rates by more than a quarter percentage point at a time, given that layoffs remain low and unemployment claims do not signal significant deterioration.
“If we saw some quicker deterioration in the labor market, then that would tell me, ‘Well, we need to do more, quickly, to support the labor market, even if we have uncertainty about where our ultimate destination is going to be,” Kashkari told WSJ.
Until inflation surged to a four-decade high in 2022, Kashkari was one of the Fed’s most dovish officials, prioritizing the labor market over inflation concerns. However, in recent years, he has become one of the more hawkish voices, showing greater concern about inflation risks.
The Fed official remains unconvinced that the current rate levels are as restrictive as some have suggested. He pointed to the low number of layoffs and a resilient housing sector as indicators of this. Nevertheless, he acknowledged that this does not necessarily justify keeping rates unchanged.
“I’m still unclear how tight policy is, but the balance of risks in my view have shifted more towards the labor market and away from the inflation side of our dual mandate,” said Kashkari.
Source: Economy - investing.com
