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

• Kashkari believes the Fed is 'pretty close to neutral right now,' with current rates only about half a percentage point from the committee's estimated neutral rate that neither supports nor restrains growth
• The unemployment rate has risen to 4.6% while core inflation remains at 2.8%, above the Fed's target, creating uncertainty about whether inflation persistence or labor market softening poses the bigger risk
• As a voting FOMC member in 2026, Kashkari has expressed concerns about recent rate cuts and potential inflationary effects from President Trump's tariffs, suggesting the Fed's cutting cycle may be nearing completion

Minneapolis Fed's Kashkari Signals End to Rate Cut Cycle

Minneapolis Federal Reserve President Neel Kashkari indicated Monday that the central bank is approaching the point where interest rate cuts should pause, stating "we're pretty close to neutral right now" in a CNBC interview.

Key Policy Position:

The federal funds rate currently sits at 3.5%-3.75%, approximately half a percentage point above the Fed's consensus neutral rate—the level that neither stimulates nor restricts economic growth. Following three consecutive rate cuts in late 2024, Kashkari suggests further reductions may be unnecessary as policymakers assess competing economic forces.

Economic Concerns:

Kashkari highlighted the dual challenge facing the Fed: inflation remains elevated at 2.8% (core PCE measure) while unemployment has risen to 4.6%. He noted the economy has proven "far more resilient" than expected over the past two years, suggesting monetary policy may not be as restrictive as previously thought.

Inflation Risks:

The Fed official expressed particular concern about persistent inflation, potentially exacerbated by President Trump's tariff policies, which "could take multiple years to work their way through the system." However, he acknowledged unemployment could also "pop from here," creating competing risks for policymakers.

Leadership Transition:

As a voting member of the Federal Open Market Committee in 2025, Kashkari's views carry additional weight. He praised outgoing Fed Chair Jerome Powell's performance and expressed hope Powell would remain as a governor beyond his chair term ending in May 2027, despite Trump planning to announce a successor in January.

The remarks suggest the Fed's rate-cutting campaign is nearing completion as officials shift focus toward calibrating policy at neutral levels while monitoring inflation and labor market dynamics.