Minneapolis Federal Reserve President Neel Kashkari said Sunday it’s a “reasonable expectation” that the Fed will cut interest rates once this year and then wait until December.
“We need more evidence to be confident that inflation is credibly returning to 2 percent,” Kashkari said in an interview on CBS’ “Face the Nation.”
The Federal Reserve left interest rates unchanged last week.
The Federal Reserve said it would keep interest rates in the 5.25% to 5.50% range, where they have been since July last year, to keep pressure on the economy to tame inflation, and also said the median forecast of 19 U.S. central bank governors was for one rate cut this year.
“We’re in a very good position now to take time to gather more data on inflation, the economy and the labor market before making any decisions,” Kashkari said. “We’re in a strong position, but if there is going to be just one rate cut, as the median suggests, it would probably be around the end of the year.”
Kashkari has been more cautious than many of his peers about the possibility of easing monetary policy, but he has not said how many rate cuts he personally expects.
He said he was surprised that the U.S. job market has held up well despite the Fed’s aggressive hikes in borrowing costs in 2022 and 2023, but he expects it to cool further going forward.
“We are hopeful that a gradual cooling will bring us back to a more balanced economic position,” he said.
The Federal Reserve’s (FRB) target for inflation, measured as the year-on-year change in the personal consumption expenditures price index, recorded 2.7% in April. The Fed has a target of 2%.
The unemployment rate rose to 4% in May, the highest level since just before the Fed began its interest rate hiking campaign in March 2022 but still below levels most policymakers consider sustainable.
Asked about high borrowing costs as a barrier to homebuyers, Kashkari said the best thing the Fed can do for the housing market is to bring inflation down to its target level.
“If we were to simply lower interest rates now to support homeownership, it would probably drive up home prices and not actually improve home affordability,” he said.
“The best thing we can do is do our job, which is to get inflation down to our target, and then hopefully the supply side of the economy will be able to step in and build the housing that Americans need.”
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