Federal Reserve's Kashkari: The U.S. labor market is cooling but remains robust; interest rates may be slightly lowered in 2025
Minneapolis Federal Reserve President Neel Kashkari stated that the U.S. labor market is cooling but remains robust, and he expects interest rates to moderately decline by 2025. He noted that although job growth in January was below expectations, the unemployment rate fell to 4%, and wage growth remains resilient. Kashkari takes a cautious stance on future interest rate policies, believing that more policy information is needed. He anticipates that the federal funds rate will moderately decline before the end of this year
According to the Zhitong Finance APP, Minneapolis Federal Reserve President Neel Kashkari stated on Friday that although the U.S. labor market has cooled somewhat, it remains robust, and he expects interest rates to "moderately" decline in 2025.
"This is still a good labor market," Kashkari said in an interview. "It's not as hot as it was a year or two ago," but he also added, "The economy is still strong, and business confidence is optimistic."
Kashkari's remarks come as the latest data from the U.S. Bureau of Labor Statistics shows that job growth in January fell short of market expectations. However, the non-farm payroll data for December was revised upward, and the unemployment rate dropped to 4%, the lowest level since May of last year. Additionally, average hourly wages in January increased by 0.5% month-on-month, marking the largest single-month increase since August of last year, indicating that wage growth still has some resilience.
Like other Federal Reserve officials, Kashkari is cautious about the outlook for future interest rate policy, especially considering the policy uncertainties that may arise from the Trump administration. He noted, "We are currently in a very favorable position to keep interest rates stable until we get more specific information about tariffs, immigration, and tax policies." He expects the federal funds rate to "moderately" decline by the end of this year.
The Federal Reserve decided to keep interest rates unchanged at its meeting on January 28-29, after having cut rates by a total of one percentage point in the last three meetings of 2024. Although the market has been anticipating further rate cuts, most Federal Reserve officials believe that due to inflation not yet reaching the 2% target level and the labor market remaining healthy, the pace of rate cuts will slow this year.
In December of last year, the median forecast of 19 Federal Reserve officials indicated that there would only be two possible rate cuts in 2025. Furthermore, the policies of the Trump administration, including restrictions on immigration, tax cuts, and tariff adjustments, could impact economic growth and inflation, leading to a reduction in market expectations for Federal Reserve rate cuts in 2025