Kashkari signals possible december rate cut amid economic resilience
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Federal Reserve Bank of Minneapolis President Neel Kashkari has suggested that a rate cut could still be a viable option at the Federal Reserve’s December meeting, despite ongoing inflation concerns and the economy's stronger-than-expected performance. In a recent interview on Bloomberg Television, Kashkari indicated that discussions around a potential 25-basis-point reduction in borrowing costs remain on the table as the central bank evaluates its next move.
“It’s still a reasonable option,” Kashkari said when asked whether policymakers might opt for a quarter-point rate cut at their final meeting of the year. “Given the current economic outlook, I think it’s a reasonable conversation for us to have in December.”
Kashkari’s remarks come after the Fed has already implemented several rate cuts this year, including a more significant 50-basis-point reduction in September. Despite these moves, Kashkari noted that the economy’s continued strength, even in the face of higher interest rates, suggests that the neutral interest rate—the level that neither spurs nor restricts growth—could be higher than previously thought.
This shift raises questions about the effectiveness of current monetary policy in cooling demand, with Kashkari pointing out that the longer the economy shows resilience, the more likely it is that the neutral rate has fundamentally changed. "The question I’m grappling with is how much of a drag are we truly putting on the economy, and how will inflation evolve in the months ahead?" he said.
The Federal Reserve has made significant progress in bringing inflation closer to its 2% target, though recent data indicates that progress has slowed. While Kashkari expressed confidence that inflation is gradually trending down, he emphasized that inflationary pressures still remain, particularly in areas vulnerable to supply chain disruptions or external shocks.
“The labor market remains strong, which gives me some confidence that we’re on the right track, but we’ll need more data to fully assess where inflation is headed,” Kashkari added. The latest inflation data, which will be released later this week, will play a critical role in shaping the Fed's decision-making ahead of the December meeting.
Kashkari also acknowledged that trade disruptions, including tariffs or retaliatory measures by other countries, could still exert upward pressure on prices, complicating the inflation outlook. Despite these risks, the Fed's overall approach remains focused on achieving price stability without derailing economic growth.
As the central bank prepares for its December 17-18 meeting, the possibility of another rate cut remains a point of debate among Fed officials. Some have indicated a preference for a more gradual reduction in rates, but much will depend on the latest economic data, which will provide further clarity on inflation trends and labor market conditions.
“It’s still a reasonable option,” Kashkari said when asked whether policymakers might opt for a quarter-point rate cut at their final meeting of the year. “Given the current economic outlook, I think it’s a reasonable conversation for us to have in December.”
Kashkari’s remarks come after the Fed has already implemented several rate cuts this year, including a more significant 50-basis-point reduction in September. Despite these moves, Kashkari noted that the economy’s continued strength, even in the face of higher interest rates, suggests that the neutral interest rate—the level that neither spurs nor restricts growth—could be higher than previously thought.
This shift raises questions about the effectiveness of current monetary policy in cooling demand, with Kashkari pointing out that the longer the economy shows resilience, the more likely it is that the neutral rate has fundamentally changed. "The question I’m grappling with is how much of a drag are we truly putting on the economy, and how will inflation evolve in the months ahead?" he said.
The Federal Reserve has made significant progress in bringing inflation closer to its 2% target, though recent data indicates that progress has slowed. While Kashkari expressed confidence that inflation is gradually trending down, he emphasized that inflationary pressures still remain, particularly in areas vulnerable to supply chain disruptions or external shocks.
“The labor market remains strong, which gives me some confidence that we’re on the right track, but we’ll need more data to fully assess where inflation is headed,” Kashkari added. The latest inflation data, which will be released later this week, will play a critical role in shaping the Fed's decision-making ahead of the December meeting.
Kashkari also acknowledged that trade disruptions, including tariffs or retaliatory measures by other countries, could still exert upward pressure on prices, complicating the inflation outlook. Despite these risks, the Fed's overall approach remains focused on achieving price stability without derailing economic growth.
As the central bank prepares for its December 17-18 meeting, the possibility of another rate cut remains a point of debate among Fed officials. Some have indicated a preference for a more gradual reduction in rates, but much will depend on the latest economic data, which will provide further clarity on inflation trends and labor market conditions.