By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – U.S. Federal Reserve policymakers stated on Monday that their recent large half-point rate cut aimed to maintain what they believe is an emerging and healthy economic balance. With inflation trending toward the Fed’s target and unemployment near stable price levels, the decision reflects the need to relieve pressure on the economy.

In a morning address, three reserve bank presidents expressed their support for the rate cut, indicating that current policies were overly restrictive as cost pressures ease and job market risks grow. Chicago Fed President Austan Goolsbee remarked, “Rates are the highest they’ve been in decades. It makes sense to hold rates like this when you want to cool the economy, not when you want things to stay where they are.”

Goolsbee emphasized that the 50 basis point cut initiated last Wednesday marks a return to considering both sides of the Fed’s dual mandate, aiming for both low unemployment and stable prices, defined as an annual 2% increase in the Personal Consumption Expenditures price index (PCE).

As of July, the annual PCE was at 2.5% and is anticipated to slow further, influencing discussions regarding potential rate cuts in the upcoming November meeting. Current unemployment stands at 4.2%, aligning with the Fed’s median objectives for steady inflation.

Atlanta Fed President Raphael Bostic noted that the economy is approaching normal levels for both inflation and unemployment more rapidly than expected, suggesting a needed adjustment in monetary policy from the current tight stance. He viewed the recent half-point cut as an appropriate initial move but cautioned against a rush to lower rates amid robust policy discussions.

Bostic cited a quicker-than-expected drop in inflation and a cooling labor market as critical factors in potentially normalizing monetary policy sooner than previously anticipated, while Minneapolis Fed President Neel Kashkari supported the half-point cut but suggested a more gradual approach.

Despite the Fed’s actions, market reactions were muted, with the next moves for the Fed’s meeting on November 6-7 still being closely watched, as opinions on the pace and extent of future cuts remain diverse among policymakers. The median stance from policymakers places the longer-term federal funds rate at 2.9%, yet opinions on the short-term neutral rate fluctuate between 3% to 3.25%.

Bostic noted, “There’s a significant variance among policymakers on the outlook for rates. It’s crucial to either avoid the perception of rushing towards a neutral level and to ensure we exercise patience due to the present economic uncertainties.”