In an interview with CNBC Europe on Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari said inflation is currently trending sideways, that one or two rate cuts would require “several more months of positive inflation data,” and that government spending is “contributing to high inflation.”
Kashkari began by agreeing with Federal Reserve Chairman Jerome Powell that inflation is “flat,” but added that recent inflation numbers have been better than the past few months of 2024.
Co-host Karen Tso then asked, “In your view, what would it take for one or two rate cuts this year?”
Kashkari responded: “Well, I think we need many more, many more months of positive inflation data to be confident that a rate cut is appropriate. The U.S. economy has been incredibly resilient, GDP growth has been much stronger than expected. A lot of people thought we were going to fall into a recession at the end of last year. We didn’t. Instead, we’ve had very strong growth. The U.S. consumer has been incredibly resilient, the housing market has been resilient. So I don’t think there’s a rush to cut rates. I think we should take the time to do the right thing.”
Kashkari also said the “neutral interest rate — the minimum policy stance that neither stimulates nor discourages the economy” may have risen, and if so, “further policy increases would be needed to get inflation back to 2 percent.”
Co-host Arabile Gumede asked: “Do you think the impact of the government’s heavy spending on reopening the economy has hindered progress in containing inflation?”
Kashkari responded: “It’s contributing to higher inflation. I think the bigger driver is on the supply side. Covid shut down the service sector, Russia invaded Ukraine, which raised commodity prices and disrupted supply chains. A lot of the supply chain issues resolved themselves. That led to deinflation. The question is, will it go all the way down to 2% or will monetary policy have to do the rest of the work?”
He also said that a significant weakening of the labor market would affect thinking about cutting interest rates.
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