Minneapolis Fed’s Kashkari indicates interest rates don’t need to be cut much more

Minneapolis Federal Reserve President Neel Kashkari said Monday he thinks the central bank is close to the point where it should stop lowering interest rates.

In the CNBC interview, the central banker said the key calculus now is whether the Fed should focus more on the slowing labor market or stubbornly high inflation.

“My guess is we’re pretty close to neutral right now,” Kashkari said in a live interview on CNBC’s “Squawk Box.” “We need to collect more data to see which is the greater force: inflation or the labor market? Then we can move from a neutral stance in whatever direction is necessary.”

Setting neutral is critical for Fed policymakers as a divided group decides whether to continue a series of three consecutive rate cuts implemented in the second half of 2025 or stay at the same level as policymakers watch economic conditions evolve.

The key federal funds rate is currently targeted at 3.5%-3.75%. That’s only about half a point below the committee’s consensus on a neutral interest rate, or a rate that neither supports nor constrains growth, according to estimates made at the December meeting.

“I still think inflation is too high. The big question on my mind is: How tight is monetary policy?” Kashkari said: “Over the last few years we kept thinking the economy would slow down, and the economy has proven to be much more resilient than I expected. This suggests to me that monetary policy should not put downward pressure on the economy.”

Kashkari’s voice carries slightly more weight as he is a voting member of the Federal Open Market Committee, which sets benchmark interest rates in 2026. He recently said he would oppose the latest cuts because he is concerned about inflation, which could yet be affected by President Donald Trump’s tariffs.

Although he said he was concerned about the labor market, he stated that the committee’s work on the cuts was close to completion. The unemployment rate rose to 4.6% this year, while the Fed’s most recent preferred measure of core inflation was 2.8%; however, the accuracy of this data has been questioned due to the effects of the government shutdown.

“Inflation risk is a persistent risk; it takes a few years for these tariff effects to work through the system, whereas I think there is a risk that the unemployment rate will explode from here,” Kashkari said. he said.

Separately, Kashkari said he would be happy to have Jerome Powell stay on board after his presidential term ends in May. Although he is certain to be replaced as president, his term as governor will last until January 2028.

“I have no idea if he’ll stay in office. I think he’s done a great job as chairman. None of us are perfect. I don’t think he’s perfect. I’m not perfect. We’re not perfect as a committee,” Kashkari said. “But overall I think he’s doing an excellent job, and I’d like him to remain my colleague for as long as he wants.”

Trump stated that he would name Powell’s successor in January.