The president of the Minneapolis Federal Reserve said Monday in an interview that he thinks the central bank is near the point at which it should stop lowering interest rates.
Neel Kashkari said in the interview that the key calculus now is whether the Fed should be more focused on a slowing labor market or stubbornly high inflation.
“My guess is we’re pretty close to neutral right now,” Kashkari said in a “Squawk Box” interview. “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.”
CNBC said that calibrating “neutral” is a key for Fed policymakers, a divided group that decides whether to continue the streak of three consecutive rate cuts implemented in the latter part of 2025.
How Tight is Monetary Policy?
Will they hold pat as policymakers watch economic conditions unfold?
The key federal funds rate is currently targeted in a range between 3.5%-3.75% and according to projections made at the December meeting, that’s roughly half a percentage point from the committee consensus on the neutral rate — one that neither supports nor restrains growth.
“I think inflation is still too high. And the big question in my mind is, how tight is monetary policy?” Kashkari said. “Over the last couple of years, we kept thinking the economy is going to slow down, and the economy has proven to be far more resilient than I had expected. That tells me, well, monetary policy must not be putting that much downward pressure on the economy.”
CNBC said that Kashkari’s voice carries a little extra weight this year as he is a voting member on the Federal Open Market Committee, which sets benchmark interest rates. Recently, Kashkari has said he would have opposed recent cuts as he worries about inflation, which could be influenced yet by President Donald Trump’s tariffs.
Even he expressed concern about about the labor market, Kashkari said that the committee’s work is close to being done on cutting.
Unemployment Has Drifted Higher
The unemployment rate has drifted higher to 4.6% this year while the Fed’s preferred core inflation measure most recently was at 2.8%, CNBC said, albeit according to data whose accuracy has been questioned due to impacts from the government shutdown.
“Inflation risk is one of persistence, that these tariff effects take multiple years to work their way all the way through the system, whereas I do think there’s a risk that the unemployment rate could pop from here,” Kashkari said.
Kashkari said separately that he would be happy if current Chairman Jerome Powell stays on board after his term as chair ends in May. Though he is certain to be replaced as chair, Powell’s term as governor lasts until January 2028.
“I have no idea whether he stays on. I think he’s done a wonderful job as chair. None of us are perfect. I think he’s not perfect. I’m not perfect. As a committee, we’re not perfect,” Kashkari said. “But 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.”
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