Fed policymakers call for ‘gradual’ rate cuts

(Reuters) -A trio of Federal Reserve policymakers on Monday expressed support for gradual U.S. interest-rate cuts, citing the strength of the economy and an uncertain outlook.

The remarks — from Kansas City Fed President Jeffrey Schmid, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan — feed into what’s expected to be a broad debate of the appropriate path for policy at the Fed’s upcoming policy meeting, on Nov. 6-7.

After Friday, U.S. central bankers will observe a communications blackout — abstaining from any public comments on their monetary policy views — until the Fed announces its policy decision at the close of the two-day meeting on Nov. 7.

“While I support dialing back the restrictiveness of policy, my preference would be to avoid outsized moves, especially given uncertainty over the eventual destination of policy and my desire to avoid contributing to financial market volatility,” Schmid told the Certified Financial Analysts Society of Kansas City, in Missouri. He said he believes rate cuts should be gradual and deliberate.

Logan, speaking earlier in the day to the Securities Industry and Financial Markets Association in New York, made similar remarks.

“If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals,” she said.

The Fed last month cut the policy rate by a bigger-than-expected half of a percentage point, to a range of 4.75% to 5%, given cooling in both inflation and labor markets. It was the first rate cut in four years. Fed policymakers’ economic projections published at the time showed that most thought further, and likely smaller, interest-rate reductions would be appropriate.

Since then, strong retail sales and bigger-than-expected job growth in September have boosted speculation that the Fed could cut rates even more slowly, perhaps even pausing at next month’s rate-setting meeting or the one in December.

Kashkari on Monday appeared to embrace a go-slow approach, repeating his call for “modest” interest rate cuts over the next “several quarters.”

He said the economy’s strength shows the eventual resting point for the policy rate — what is known as the neutral rate, where borrowing costs neither slow nor stimulate growth — may be higher than it was in the past, a point that Schmid also made

“We want to keep the labor market strong and we want to get inflation back down to our 2% target,” Kashkari said, and the appropriate path of interest rates will “depend on the data.”

But Kashkari said that a sharp deterioration of labor markets could move him to advocate for faster cuts.     “If we saw a weakening, like real evidence that the labor market is weakening quickly, then that would tell me, as one policymaker, ‘Hey, maybe we ought to bring down our interest rate more quickly than I currently expect,'” Kashkari said in a town hall at the Chippewa Falls Area Chamber of Commerce.

(Reporting by Ann Saphir; Editing by Chris Reese and Leslie Adler)