Federal Reserve's Kashkari: September may welcome the first interest rate cut window, tariffs remain the biggest variable

Minneapolis Federal Reserve President Neel Kashkari stated that he expects the Federal Reserve to make two interest rate cuts this year, with the first cut possibly occurring in September. However, he warned that the impact of tariffs on inflation may have a lagging effect, and policymakers should remain flexible.

On Friday, Kashkari expressed in an article published on the Minneapolis Federal Reserve Bank's website:

While gathering more real evidence of the tariff impact on the economy, the Federal Reserve should focus more on actual inflation and economic data rather than prematurely committing to an expanded policy path.

Since December, Kashkari has not changed his interest rate expectations for 2025. At that time, Federal Reserve policymakers had implemented a cumulative one percentage point cut over the year, with all cuts concentrated in the last four months of that year, when price pressures eased and signs of weakness appeared in the labor market. Kashkari had then anticipated only two rate cuts, as he had concerns about whether inflation would continue to decline this year.

By March, given the increased uncertainty surrounding tariffs and stagnation in inflation progress, he maintained that forecast. Now, although there is not yet much evidence showing that tariffs are impacting prices, he is concerned that this situation may occur later this year.

Kashkari indicated that his prediction of two rate cuts this year implies that the first cut will come in September. He also noted that even if the Federal Reserve resumes the rate-cutting process in September, it should not be bound by a specific policy path.

If the data requires it, we can maintain at the new policy rate level until we have greater confidence that inflation is moving toward our target level.

Kashkari praised the resilience shown by the economy following the unexpected tariff announcement in April and described the labor market as "moderately cooling." He stated:

Executives of companies he spoke with are reluctant to pass on tariff costs to customers, but if trade agreements fail to materialize and tariffs remain high, they may have to do so. The time required to transport goods from Asia to the U.S. is another reason why the impact of tariffs may be delayed.

Last week, Federal Reserve officials kept interest rates unchanged at the monetary policy meeting. Since then, Fed governors Waller and Bowman have indicated that they may support rate cuts as early as next month. However, most policymakers who spoke this week, including Kashkari, have clearly stated that a July rate cut has not been substantively considered.

Trump has also repeatedly criticized Federal Reserve Chairman Jerome Powell and the Fed's approach to maintaining stable interest rates