Minneapolis Federal Reserve President Neel Kashkari stated on Sunday that it is a "reasonable prediction" that the U.S. central bank will cut interest rates once this year, with the potential cut anticipated to occur in December. Kashkari emphasized the need for further evidence indicating a return to the desired 2% inflation target before taking any decisions.

The Federal Reserve decided to maintain its benchmark policy rate in the range of 5.25% to 5.50% last week, a level that has remained unchanged since July of last year. This decision was made in order to exert continued pressure on the economy to mitigate inflation. Recent projections released by the central bank revealed that the median forecast suggested a single interest rate cut within the year.

Kashkari expressed the belief that the Fed is currently in a strong position, with ample opportunity to observe additional data on various economic factors, including inflation and the labor market, before finalizing any decisions. The Minneapolis Fed President noted that if one rate cut were to be implemented, as indicated by the median projection, it would likely take place towards the end of the year. However, Kashkari refrained from disclosing the number of rate cuts he personally envisions.

Despite surprise at the resilience of the U.S. job market amidst previous interest rate hikes, Kashkari expects a cooling effect in the future. He stressed the importance of achieving a balanced economy and expressed hopes for a modest cooling period before reaching that equilibrium.

As of April, the Fed's measure of targeted inflation, the year-over-year change in the personal consumption expenditures price index, stood at 2.7%, exceeding the 2% target. The unemployment rate in May slightly rose to 4%, which, although a high level since the Fed's rate hiking campaign in 2022, remains below the threshold considered sustainable by most policymakers.

When asked about the challenges posed by high borrowing costs for prospective homebuyers, Kashkari highlighted the importance of bringing inflation back down to target. He argued that reducing interest rates to support homeownership at present could potentially drive up housing prices without improving affordability. Kashkari believes that the key task of the Fed is to reestablish inflation within target, encouraging increased home supply to meet the needs of Americans.

Overall, Fed President Neel Kashkari's cautious approach towards monetary policy easing stands in contrast to the views of some of his colleagues. With a potential interest rate cut predicted for December, the central bank aims to strike a balance between stabilizing inflation and supporting economic growth.