Fed’s Kashkari says economy’s strength complicates case for rate cuts
Inflation, he said, is still the main reason many households feel under pressure.
Minneapolis Federal Reserve President Neel Kashkari says the U.S. economy has remained stronger than expected under higher interest rates—a resilience that complicates the Federal Reserve’s decisions on when and how much to cut interest rates this year.
Speaking during a virtual town hall hosted by the Wisconsin Bankers Association, Kashkari said Wednesday that inflation is moving lower but remains well above the Fed’s 2% target, while the labor market has cooled without showing signs of significant stress.
“The economy has been more resilient than I thought it would be," Kashkari said, pointing to steady consumer spending and heavy investment tied to artificial intelligence, including data centers and energy infrastructure. “That makes me wonder how tight monetary policy really is."
Kashkari, a voting member of the Federal Open Market Committee this year, said the Fed must be careful not to cut interest rates too aggressively before inflation is clearly on track to return to target. While job growth has slowed and hiring has softened, layoffs remain limited and the unemployment rate has hovered around 4.4%.
That balance leaves policymakers walking a narrow path. Lowering rates too soon to support employment risks prolonging inflation, Kashkari said, a concern he framed as central to the Fed’s credibility.
“If we cut rates and that makes the inflation problem worse, are we really helping families?" he said. Inflation, he said, is still the main reason many households feel under pressure.
Kashkari said he has the most confidence that housing-related inflation will continue to ease as slower rent growth feeds into official data. He expressed less certainty about goods inflation, which has risen over the past year, and non-housing services inflation, which he said is closely tied to wage growth and could prove slower to cool.
Kashkari also warned that tariff-related price growth could take longer than expected to fully work through the economy. The central bank, he said, is still committed to a 2% inflation target.
“But if this goes on for long enough, people are going to start to doubt how serious we are about that," he noted.
Kashkari’s remarks came on a busy day for Fed watchers, with Philadelphia Federal Reserve President Anna Paulson and Fed governor Stephen Miran also delivering speeches. Paulson, a voting regional president this year, signaled openness to additional rate cuts later in 2026 if inflation continues to moderate and labor market conditions stabilize. Miran argued that deregulation could lower inflation pressures and justify easier monetary policy.
Against that backdrop, Kashkari took a more cautious tone. Inflation hasn’t yet fallen far enough to justify an aggressive easing cycle, he said. While he acknowledged signs of the labor market cooling, he said policy decisions will hinge on whether inflation continues to weaken in the months ahead.
Kashkari also addressed questions about the Fed’s independence as the Department of Justice launches an investigation into Chair Jerome Powell over the management of a building renovation and President Donald Trump prepares to announce his nomination to replace Powell as chair.
Kashkari said that monetary policy decisions must remain insulated from political pressure.
“Whoever the next chair is will get one vote," Kashkari said. “And the best argument wins."
For now, Kashkari said, his focus remains on ensuring inflation returns fully to target before the Fed moves decisively to lower rates.
Write to Nicole Goodkind at nicole.goodkind@barrons.com
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