2026 FOMC voting member, hawkish representative, and President of the Minneapolis Fed, Kashkari, stated he will pay attention to the upcoming inflation data to determine whether it is appropriate to cut rates again at the Federal Reserve's December meeting.
When asked what might lead policymakers to pause rate cuts next month, he stated, 'There must be an unexpected change in inflation for the outlook to shift so significantly.'
Kashkari said during a Yahoo Finance investment conference on Tuesday, 'If we see inflation unexpectedly rise between now and December, that could lead us to pause. It's hard to imagine the labor market will truly heat up between now and December. There isn't much time left.'
The Federal Reserve cut rates by 25 basis points last Thursday, marking the second consecutive rate cut. While Fed officials suggested in their September forecast that there would be a 25 basis point cut in both the November and December meetings, investors have scaled back their bets on a rate cut in the final meeting of the year due to stagnant inflation progress and strong economic performance.
A recent report showed that the Fed's preferred core inflation measure rose by the largest margin since April in September. The slowdown in hiring in October largely reflected the impact of hurricanes and strikes. Consumer spending remains strong, and the U.S. economy expanded robustly in the third quarter.
Kashkari reiterated that the economy is strong, but inflation has not fully decreased to the Fed's 2% target. He stated that given housing inflation is above average, price increases may take one to two years to reach this target, although he described the cooling of inflation as 'encouraging.'
The President of the Minneapolis Fed stated that in the context of strong productivity growth, the neutral interest rate (i.e., monetary policy that neither stimulates nor restrains the economy) may now be higher. This could lead policymakers to lower interest rates less than previously expected in the coming months.
Kashkari said that while the exact level of the neutral interest rate is currently uncertain, policymakers will have a better understanding of this in the coming year. He added that current policy is 'moderately restrictive,' and short-term borrowing costs continue to weigh on inflation and the economy, though not significantly. He stated, 'My judgment is that we are still in a moderately contractionary stance, but ultimately the economy will guide us to further lower interest rates.'
