Minneapolis Fed’s Kashkari indicates interest rates don’t need to be cut much more
Minneapolis Federal Reserve President Neel Kashkari stated on Monday that he believes the central bank is nearing a point where it should pause its cycle of interest rate reductions.
In a CNBC interview, the influential policymaker framed the current economic dilemma as a balancing act: whether the Federal Reserve should prioritize a softening labor market or persistently elevated inflation.
"My guess is we're pretty close to neutral right now," Kashkari said. "We just need to get more data to see which is the bigger force. Is it inflation or is it the labor market? And then we can move from a neutral stance, whatever direction is necessary."
This calibration of the so-called "neutral" rate—a level that neither stimulates nor restrains economic growth—is central to the Fed's current debate. Policymakers are divided on whether to continue with the three consecutive rate cuts implemented in late 2025 or to adopt a wait-and-see approach.
The federal funds rate currently sits in a range of 3.5% to 3.75%, which, according to the December projections, is only about half a percentage point from the committee's median estimate of the neutral rate.
"I think inflation is still too high. And the big question in my mind is, how tight is monetary policy?" Kashkari remarked. He noted that the economy's sustained resilience over recent years suggests that policy may not be exerting as much downward pressure as anticipated.
As a voting member on the Federal Open Market Committee in 2026, Kashkari's views carry significant weight. He has recently expressed a more hawkish stance, indicating he would have opposed the recent cuts due to concerns about inflation, which may be further influenced by former President Donald Trump's tariff policies.
While acknowledging concerns about the labor market, where the unemployment rate has drifted up to 4.6%, Kashkari hinted that the committee's work on rate cuts is largely complete. He contrasted the inflation risk, which he sees as one of "persistence" potentially fueled by multi-year tariff effects, with the risk of a sharper rise in unemployment.
"Inflation risk is one of persistence... whereas I do think there's a risk that the unemployment rate could pop from here," he said.
On a separate note, Kashkari voiced strong support for Chair Jerome Powell to remain on the Board of Governors after his term as chair concludes in May. Powell is certain to be replaced as chair, but his term as a governor extends until January 2028.
"I think he's done a wonderful job as chair... Overall, I think he's done an excellent job, and I would love to see him remain as a colleague for as long as he likes," Kashkari stated, acknowledging that a decision from President Trump on Powell's successor is expected imminently.
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