San Francisco Fed President Mary Daly stated at a conference that she sees no indications that would prompt a halt in the gradual reduction of interest rates. Daly emphasized that the current rate remains “very tight” for an economy steadily progressing toward 2% target, adding that ” I don’t want to see the labor market go further.”

Reflecting on Fed’s September decision to cut rates by 50bps, Daly noted that it was a “close call” between opting for a half-point or quarter-point reduction. However, she stood firmly behind the larger cut.

Although she did not give clear guidance on the pace of future cuts, Daly affirmed that the Fed would “continue to adjust policy to make sure it fits the economy that we have and the one that’s evolving.”

Kansas City Fed President Jeffrey Schmid emphasized a measured approach to monetary policy, stating that while he supports reducing the restrictiveness of current rates, his preference is to “avoid outsized moves.”

“Lowering rates in a gradual fashion would provide time to observe the economy’s reaction to our interest rate adjustments and give us the space to assess at what level interest rates are neither restricting nor boosting the economy,” Schmid explained.

He also highlighted that the neutral rate, the level where interest rates neither stimulate nor restrict economic growth, is likely to be “well above” the levels seen during the pre-pandemic period.

Schmid also warned that aggressive rate cuts could foster an expectation of continued rapid cuts, which could amplify financial market volatility. “My belief is that a cautious and gradual approach to policy adjustments would be best suited for this uncertain environment,” he said.

Minneapolis Fed President Neel Kashkari stated at an event overnight that he expects “some more modest cuts” in interest rates over the coming quarters, to bring rates closer to a neutral level. However, Kashkari emphasized that the pace and size of future cuts will be heavily dependent on incoming data.

The concept of a “neutral” rate refers to the point where borrowing costs neither accelerate nor hinder economic growth. According to Kashkari, the economy’s current resilience suggests that the neutral rate may be higher than previously estimated.

However, Kashkari also highlighted a key risk that could alter this outlook. If significant weakness were to emerge in the labor market, Fed might need to lower rates faster than currently anticipated.

“If we saw real evidence that the labor market is weakening quickly, that would tell me, as one policymaker, that maybe we ought to bring down our interest rate more quickly than I currently expect,” he explained.

In a speech today, Dallas Fed President Lorie Logan said that if the economy continues on her expected path, a strategy of “gradually lowering the policy rate toward a more normal or neutral level” would help balance the risks and support Fed’s dual mandate of stable inflation and full employment.

Logan described the US economy as “strong and stable,” though she noted that “meaningful uncertainties” remain. Key risks include pressures on the labor market and Fed’s ability to sustainably meet its inflation targets.

Logan also stressed that Fed must “remain nimble and willing to adjust if appropriate”.