On Wednesday, Minneapolis Federal Reserve Bank President Neel Kashkari indicated that improved economic statistics since the start of the year may allow the Fed to lower rates only twice or once this year.
"I was at two in December," Kashkari told WSJ Live, referring to the number of quarter-point interest-rate reduction he had penciled in when Fed policymakers last submitted their quarterly economic predictions.
The Fed will meet in two weeks to determine policy with new projections. "It's hard to see, with the data that's come in, that I'd be saying more cuts than I had in December," said Kashkari.
"It seems like at a base case I'd be where I was in December, or potentially one fewer, but I haven't decided." The consensus prediction of his colleagues in December was three rate decreases this year, lowering the Fed policy rate to 4.5%-4.75% from 5.25%-5.5%.
Based on their December estimates and comments since, all Fed policymakers agree with Kashkari that the "base case scenario" is that the Fed will not raise rates further.
Kashkari stated, "the first thing we do is keep rates where they are for an extended period of time." if the economy is resilient and inflation persists. He asked: "I would want to see the argument for, why do we think we're actually tamping down the economy if the economy is ongoing in such a healthy way?"
He said the Fed wants to avoid a slump and stick a "soft landing" where inflation declines but the job market does not collapse, as it has done in the past when fighting excessive inflation.
Now, he said, "if the economy is doing very well, maybe the economy can sustain this rate environment when we didn't realize that was possible," Kashkari.
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