Federal Reserve's Kashkari: The job market is clearly cooling, and interest rates are approaching neutral levels
He also pointed out that the main risk facing inflation is its persistence—the impact of factors such as tariffs on prices may take years to fully transmit; in his view, the risk of the unemployment rate rising further from its current level cannot be ignored either
In 2026, FOMC voting member and Minneapolis Federal Reserve President Neel Kashkari stated that the current level of U.S. interest rates may be close to the "neutral rate," which neither stimulates nor suppresses the economy. The future direction of the Federal Reserve's policy will depend on the latest economic data.
In an interview with CNBC on Monday, Kashkari mentioned that over the past few years, both the market and policymakers widely believed that the U.S. economy would slow down significantly, but it has proven to be much more resilient than he previously expected. He pointed out that since the economy can still maintain strong growth in a high-interest-rate environment, the downward pressure of monetary policy on the economy may not be significant.
"This leads me to judge that the current monetary policy may be very close to neutral," Kashkari said.
Federal Reserve officials have previously hinted that after three consecutive rate cuts by the end of 2025, it is highly likely that rates will remain unchanged this month. According to the minutes of the Federal Reserve's meeting in December last year (released on December 30), most officials believe that as inflation continues to decline, there is still room for further rate cuts in the future, but there are significant differences regarding the timing and magnitude of the cuts.
Economic data released since the December meeting shows that the U.S. unemployment rate rose to 4.6% in November, the highest level since 2021; at the same time, consumer price increases were below market expectations, reinforcing the case for continued rate cuts. However, on the other hand, the U.S. economy's growth rate in the third quarter reached its fastest level in two years, intensifying market concerns about inflation potentially rising again.
Kashkari stated that the Federal Reserve needs more data to determine whether inflation factors or changes in the labor market have a more dominant impact on the economy, "and then adjust policy in the necessary direction from a neutral stance."
He also pointed out that employment has clearly cooled, and the main risk facing inflation is its persistence—factors like tariffs may take years to fully transmit their impact on prices; in his view, the risk of the unemployment rate rising further from its current level cannot be ignored either. Although inflation has eased, the rate of decline remains slow, and the anxiety of low- and middle-income groups mainly stems from inflationary pressures.
When discussing personnel issues at the Federal Reserve, Kashkari stated that he is not sure whether Federal Reserve Chairman Jerome Powell will continue to serve after his term ends; at the same time, he is not concerned about the risk of Federal Reserve regional bank presidents being fired and disagrees with U.S. Treasury Secretary Janet Yellen's view that "regional Federal Reserve presidents cannot well represent their jurisdictions."
