Labor market is not 'flashing red,' two top Fed officials say

By Greg Robb

Kashkari and Bostic try to ease concern about recession

Two top Federal Reserve officials on Monday said that they don't think the labor market is weakening dangerously - but the risk of further softening called for last week's half-point cut in the policy rate.

"For sure, the labor market is not yet flashing red for me. That is not what the data show, nor what business leaders tell us," Atlanta Fed President Raphael Bostic said in a speech to the European Economics and Financial Center.

In a separate essay published on his bank's website, Minneapolis Fed President Neel Kashkari said the economy is sending "mixed signals" about its underlying strength.

"While a softening labor market suggests a weakening of economic activity, other economic measures suggest ongoing strength," he said.

But Kashkari said he heard "cautious optimism" about the underlying health of the economy from business leaders.

"Of course, a recession can never be ruled out, but my contacts aren't seeing one around the corner," he said.

Bostic made similar comments, saying a recession was not in his outlook.

Looking ahead to the path of interest-rate policy, Bostic said that he now saw the Fed "normalizing" policy sooner than he thought a few months ago.

That means getting rates back to neutral - a place where it is no longer necessary to slow demand to achieve the 2% inflation target.

In an interview on CNBC, Kashkari said the half-point cut in the policy rate was a "larger first step to get us going."

"As we go forward, I expect, on balance, we will probably take smaller steps, unless the data changes materially," Kashkari said, saying he had penciled in quarter-point cuts at the Fed's last two meetings of the year in November and December.

In a note to clients, economists at Goldman Sachs said they have revised their Fed forecast to accelerate the pace of cuts next year. They now see a longer string of consecutive 25 basis point cuts at the next six policy meetings from November through June.

That would put the Fed's policy rate in a range of 3.25%-3.5% at the end of the easing, The benchmark rate is now in a range of 4.75%-5%.

-Greg Robb

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09-23-24 1050ET

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