A top Fed official says a slowing economy could mean interest rate cuts soon
Minneapolis Fed President Neel Kashkari pointed to weaker hiring, slower spending, and cooling inflation as reasons for a rate cut in the coming months
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Minneapolis Federal Reserve Bank President Neel Kashkari said the case for a near-term interest rate cut has strengthened amid signs of a flagging economy.
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“The real underlying economy is slowing,” Kashkari told CNBC on Wednesday, pointing to recent data on declining services inflation, stagnant wage growth and jobs, and cooling consumer spending.
“The part that I don’t have confidence in yet is what are the ultimate effects of tariffs going to be on inflation — and what I’m realizing is we may not know the answer to that for quarters, or a year, or more,” he said.
“That tells me, as one policymaker, I need to start leaning more on the data that I’ve got confidence in,” he added. “And that means, in the near term, it may become appropriate to start adjusting the federal-funds rate.”
His comments came after the Federal Reserve held rates last week at its benchmark range of 4.25% to 4.5% for the fifth straight time, with Chair Jerome Powell saying that “the economy is in a solid position.” However, growth has moderated, he said, and consumer spending has slowed in the first half of the year.
Since then, fresh jobs data showed that the U.S. economy added just 73,000 jobs in July, with significant downward revisions for the prior two months, making a rate cut more likely.
President Donald Trump would even go on to fire Bureau of Labor Statistics Commissioner Erika McEntarfer over the release, claiming without evidence that the data was false and fearing the "Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad,” he wrote in a Truth Social post.
Kashkari added that forecasts of two rate cuts still seem reasonable this year, but that if tariffs have a bigger effect on inflation the Fed could stop or even raise rates again.
“I would love to not have to do [a U-turn], but I’m realizing that these tariff effects are going to take a lot longer to really become clear,” he said.
“And if virtually all the other economic data is pointing to a cooling economy and a slowing economy, how long can we wait until the tariff effects become clear? That’s just weighing on me right now."