MINNEAPOLIS Federal Reserve Bank President Neel Kashkari on Tuesday said that while recent inflation readings suggest disinflation is underway, the central bank is taking its time to get more clarity on whether tariffs will change that, and by how much.
“The Federal Reserve has basically been in wait and see mode, saying we need to get more clarity on how this is all playing out in the economy before we are confident on what tariffs are going to do to inflation,“ Kashkari told the La Crosse, Wisconsin Area Chamber of Commerce.
“We’ve been taking our time to try to get a sense of what’s really going on before we make any dramatic changes in our policy outlook.”
The Fed last week held short-term borrowing costs in the 4.25%-4.50% range since December, even as a majority of Fed policymakers signaled they expect to cut rates later this year.
Kashkari was not asked for, nor did he volunteer, his views on when the Fed could cut interest rates. He could imagine, he said, that the Fed could cut rates even while inflation is still above the Fed’s 2% goal “if the labor market were to deteriorate very quickly or dramatically.”
But while that is a plausible scenario, that is not his forecast, he said.
“The fundamentals of the U.S. economy appear to be quite strong right now, quite quite sound, and inflation appears to be heading back down to our target,“ Kashkari said, citing recent inflation readings that show underlying inflation is running around 2.5%. The Fed's target is 2%.
But, he said, “there’s nervousness about tariffs” that is prompting some businesses to put investments on hold, and feeding worries about higher inflation.
With trade negotiations currently underway, he said, “ultimately we need to see what actually happens and then adjust our analysis of the economy.”
