Two rate cuts ≠ easing cycle! Federal Reserve's Kashkari: If inflation is stickier than expected, we can hit the "pause button" at any time
Minneapolis Federal Reserve President Neel Kashkari stated that the Federal Reserve is expected to initiate two rate cuts this year, with the first possibly in September. However, if progress on inflation management stalls or reverses, the rate-cutting cycle may be paused. He pointed out that tariffs could drive up inflation, and businesses might pass on costs. Although current economic data shows a moderate impact from tariffs, Kashkari emphasized the need to focus on actual inflation and economic data rather than a predetermined path of easing policy
According to the Zhitong Finance APP, Neel Kashkari, the president of the Minneapolis Federal Reserve, insists that cooling inflation will allow the Federal Reserve to initiate two rate cuts this year, with the first cut possibly starting in September. In an article released on Friday, Kashkari also pointed out that if progress in managing inflation stalls or reverses, the Federal Reserve may pause the rate-cutting cycle until prices fall again. He stated that tariffs could "soon push up" inflation, as more goods from Asia, facing the largest tariff increases, are gradually entering U.S. store shelves.
Kashkari noted that although companies may be reluctant to anger consumers with price increases, in the absence of trade agreements to lower tariffs, they will begin to pass on costs. In this scenario, the impact of tariffs on inflation may come later than expected.
Meanwhile, he mentioned that current economic data shows "the impact of tariffs on prices, economic activity, or the labor market is still moderate," while inflation is moving towards the Federal Reserve's 2% target again. This may indicate that companies have received tariff exemptions, adjusted their supply chain routes, or completely avoided tariffs in other ways, thereby limiting the impact on inflation.
Kashkari stated, "These conflicting signals lead me to maintain the expectation of two rate cuts for the remainder of 2025, meaning the first cut could be in September, unless unexpected circumstances arise." He added, "If we cut rates in September and the impact of tariffs becomes evident this fall, I believe we should not preset a path for easing but adjust policy based on new data."
"If the data requires it, we can maintain the policy rate at the new level until we are more confident that inflation is returning to target." Kashkari emphasized that currently "we should focus more on actual inflation and real economic data, rather than committing to a path of easing, in case the impact of tariffs only manifests later."
Last week, Federal Reserve policymakers kept the target range for the overnight interbank borrowing rate unchanged at 4.25%-4.5%. Given that tariffs may push up inflation this year while suppressing economic growth and employment, the uncertainty of the outlook has led the central bank to adopt a wait-and-see approach
