By Ann Saphir and Michael S. Derby

(Reuters) – Minneapolis Federal Reserve President Neel Kashkari on Monday expressed his support for the recent interest rate cut by the U.S. central bank, describing it as the “right decision” due to significant progress on inflation and the risk of rising unemployment.

Kashkari noted that “the balance of risks has shifted” from higher inflation to the potential weakening of the labor market, justifying a lower federal funds rate. He referred to the bank-to-bank overnight lending rate as the Fed’s main policy lever. The central bank reduced its policy rate last week by half a percentage point to the 4.75%-5.00% range, a surprising move for many analysts.

While Kashkari is not one of the Fed’s 12 voting policymakers this year, his views have evolved from being a hawk advocating for tighter monetary policy to supporting the recent rate cut. He commented last month on being open to a rate reduction but preferred a smaller cut unless the labor market showed rapid deterioration.

In an interview with CNBC post-release of his essay, Kashkari described the half-percentage-point cut as a positive first step, noting that even with this cut, interest rates remained restrictive. He acknowledged potential support for both a 25 or 50 basis point cut, stating it was ultimately the committee’s judgment to proceed with the larger reduction.

Kashkari’s current stance indicates less urgency for aggressive rate actions, suggesting that he favors quarter-percentage-point cuts at the remaining meetings this year, contingent on incoming data.

His remarks demonstrate alignment with other Fed officials, as he projects a possible additional half-percentage-point reduction during the year’s final meetings, and a total decrease of one percentage point in the next year, bringing the policy rate to 3.4%.

Kashkari emphasized that the actual rate adjustments will depend on upcoming data, highlighting that inflation, measured by the Fed’s preferred metric, has decreased to 2.5%. This indicates considerable progress but is not a declaration of victory.

Despite inflation risks subsiding, he acknowledged a softening labor market, with unemployment slightly rising to 4.2% from last year, and a noticeable slowdown in labor conditions. Nevertheless, he pointed out that consumer spending and economic growth remain resilient, describing the current economic mix as “confusing” but not indicative of impending recessionary pressures.