Fed’s Kashkari sees modest rate cuts ahead to neutral

Minneapolis Fed President Neel Kashkari stated at an event overnight that he expects “some more modest cuts” in interest rates over the coming quarters, to bring rates closer to a neutral level. However, Kashkari emphasized that the pace and size of future cuts will be heavily dependent on incoming data.

The concept of a “neutral” rate refers to the point where borrowing costs neither accelerate nor hinder economic growth. According to Kashkari, the economy’s current resilience suggests that the neutral rate may be higher than previously estimated.

However, Kashkari also highlighted a key risk that could alter this outlook. If significant weakness were to emerge in the labor market, Fed might need to lower rates faster than currently anticipated.

“If we saw real evidence that the labor market is weakening quickly, that would tell me, as one policymaker, that maybe we ought to bring down our interest rate more quickly than I currently expect,” he explained.