Neil Kashkari, president of the Federal Reserve Bank of Minneapolis, said that the current interest rate might be close to the neutral level for the US economy, and the central bank’s actions would depend on the upcoming data.
Over the past few years, we have always believed that the economy would slow down, but it has turned out that the economy’s resilience far exceeded my expectations, Kashkari, who has returned to the voting ranks of the Federal Reserve this year, said on CNBC on Monday. “This indicates that the downward pressure of monetary policy on the economy should not be significant. I guess our current policy is close to neutral,” he said.
After cutting interest rates for three consecutive months until the end of 2025, the Federal Reserve may keep rates unchanged this month. The minutes of the last month’s meeting, released on December 30, showed that most Fed officials believed that further rate cuts would eventually be necessary as inflation declined, but there were differences of opinion on when and by how much to cut.
The economic data released after the Fed’s December meeting showed that the unemployment rate rose to 4.6% in November, the highest level since 2021, and the increase in consumer prices was lower than expected, further strengthening the necessity of cutting interest rates. However, the economic growth rate in the third quarter also reached the fastest pace in two years, intensifying concerns that inflation might rise again.
Kashkari said, “We just need to get more data to see which factor has a greater impact – inflation or the labor market – and then we can take any necessary actions from a neutral position.”
He said, “The inflation risk lies in its persistence – it will take years for the full impact of these tariffs to permeate the entire system – and I think the unemployment rate could soar from here.”
Kashkari has historically been known as a “hawk” and has not readily advocated for interest rate cuts. When a “former hawk” begins to publicly emphasize that “inflation is slowly declining, but the unemployment rate still has the potential to jump,” this is already a clear indication of dovishness in the language of the Federal Reserve.
CNBC is a platform for traders, fund managers and real-time market updates. It is designed to inform investors.
Before the release of the non-farm payroll data, the remarks made by Federal Reserve officials usually serve only two purposes: either to curb the market’s over-interpretation of the directional risks of the non-farm payroll data, or to calibrate expectations in advance to prevent excessive market volatility after the data is released.
This time, it’s clearly the second scenario. Kashkari’s choice to emphasize that “the unemployment rate could jump” is tantamount to saying that if the non-farm payroll report is not good, don’t be too surprised.
