Fed policymakers say job risks justify rate cuts, discuss pace of shift to easing

Several Federal Reserve policymakers said Monday that last week's steep 50 basis point rate cut was an effort to maintain what they believe is a healthy balance emerging in the economy, with inflation moving toward its target and unemployment near levels consistent with stable prices.Three regional Federal Reserve presidents said Monday they supported last week's decision to cut interest rates, arguing that current policies are putting too much pressure on the economy at a time when price pressures are waning and job market risks are rising - a situation in which a more "neutral" rate is appropriate.

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foreign exchange trading platformHe said inflation and unemployment are close to the Fed's targets, but "interest rates are the highest they've been in decades. They're reasonable when you want to cool the economy, but not when you want the economy to stay where it is."

Chicago Federal Reserve President Goolsbee said"I am pleased with this first action - the 50 basis point cut in the federal funds rate announced last Wednesday - which marks a return to thinking more about the dual mandate," Goolsby added. "If we want a soft landing, we cannot afford to be behind the curve."

The U.S. personal consumption expenditures (PCE) price index rose 2.5% year-on-year in July, but is expected to continue to slow, which is key in the debate over whether the Federal Reserve may cut interest rates by another 50 basis points or 25 basis points at its November meeting.

The unemployment rate in the United States stood at 4.2% in August, which is the median level that Federal Reserve policymakers consider consistent with stable inflation.

Atlanta Federal Reserve President Robert Bostic said he believes the economy is approaching the "normal" levels of these two key statistics faster than expected, and that monetary policy should also adjust to ease the current tight credit stance.

He said a 50 basis point cut last week was the right way to start the process, but there was no need for the Fed to cut rates "like crazy" at a time when policymakers were having a "lively" discussion about how much and how fast borrowing costs should fall.

"Inflation is progressing and the labour market is cooling much faster than I thought at the beginning of the summer," Mr. Bostic, who has a vote on interest rate policy this year, said in remarks prepared for the European economic and financial centre. "I now expect monetary policy to normalise more quickly than I thought a few months ago."

Minneapolis Fed President Kashkari said he agreed a 50 basis point cut would be appropriate, but he might have also supported a 25 point cut at the time.

In any case, he said he thinks two more rate cuts of 25 basis points each are likely to be necessary by the end of the year because "the balance of risk has shifted from the risk of rising inflation to the risk of further weakening in the labor market."

Despite falling by 50 basis points, the target range for the benchmark interest rate, currently 4.75% - 5%, "remains tight."