Federal Reserve's Kashkari: Inflation is easing, and interest rates are expected to continue to decline
Federal Reserve's Kashkari stated that the U.S. economy is strong, inflation is easing, and interest rates are expected to continue to decline. On November 7, the Federal Reserve lowered the target range for the federal funds rate to 4.5%-4.75%. The market expects a further decrease of 0.25 percentage points in December. Kashkari holds a cautiously optimistic view on the labor market and mentioned the concept of neutral interest rates, believing that if productivity accelerates, the neutral interest rate may be higher, indicating that the tightening of policy may be less than expected
According to the Zhitong Finance APP, Neel Kashkari, President of the Minneapolis Federal Reserve, believes that the U.S. economy is performing strongly, inflation is easing, and interest rates are expected to continue to decline.
Kashkari stated at a Yahoo Finance investment event in New York on Tuesday, "We are continually surprised by the resilience of the U.S. economy. The current economic fundamentals look strong, and I am optimistic about the continuation of this trend."
The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 0.25 percentage points to 4.5%-4.75% on November 7. Previously, the Federal Reserve had cut rates by half a percentage point in September, marking a consecutive reduction after more than a year of unchanged rates.
Kashkari described the current monetary policy stance as "moderately tight." He expects inflation to continue to slow towards the Federal Reserve's annual target of 2% and expressed "cautious optimism" regarding the U.S. labor market.
The next FOMC meeting is scheduled for December 17-18. Current interest rate futures indicate that the market expects a roughly 65% probability of another 0.25 percentage point rate cut, while the probability of no rate cut is 35%.
For the FOMC to pause rate cuts in December, inflation data must be significantly higher than expected over the next month and a half. By then, officials will have the inflation data for October and November to assist in their decision-making.
Regarding the long-term trajectory of the federal funds rate, Kashkari mentioned the "neutral rate"—the theoretical interest rate level that neither stimulates nor suppresses economic activity. He pointed out that if productivity continues to accelerate, the current neutral rate may be higher, which means that the tightening of policy may not be as strong as expected, and there may be less room for rate cuts.
Kashkari has served as President of the Minneapolis Federal Reserve Bank since 2016 and will again be a voting member of the FOMC in 2026.
Regarding the potential economic impact of a second Trump administration, Kashkari stated that it is too early to predict.
"The Federal Reserve needs to wait for decisions from Congress and the executive branch," Kashkari said. "Then we will incorporate these policies into our analysis of economic potential, the labor market, and the inflation outlook. But we cannot take any action until the policies are clear."
Kashkari noted that raising tariffs would increase the prices of imported goods, but this does not necessarily lead to persistent inflation. "Overall, from an inflation perspective, we view tariffs as a one-time price increase," Kashkari said. "In the long run, this in itself does not have inflationary effects... The complexity arises if the other country takes countermeasures, and both sides retaliate, then we may see more lasting inflationary impacts."