Neel Kashkari’s Outlook on Inflation and Fed Rate Cuts

(Reuters) – Federal Reserve Bank of Minneapolis President Neel Kashkari maintains that easing inflation may allow the central bank to cut its policy rate twice this year, starting in September.

In an essay released on Friday, Kashkari indicated that if progress on inflation stalls or reverses, the Fed could pause its rate cuts until inflation eases again.

Kashkari noted, “Tariffs suggest an inflation boost is likely coming” as more goods from Asia with higher tariffs reach U.S. shelves.

He acknowledged that businesses may hesitate to increase prices due to customer relations but might have to raise prices if there are no trade agreements reducing tariffs.

This delayed effect of tariffs on inflation could be significant, according to Kashkari. He mentioned that current economic data shows only a modest impact of tariffs on prices, activity, or the labor market. Inflation is moving closer to the Fed’s 2% target.

Kashkari stated, “Companies may have found ways to avoid tariff impacts, limiting its inflationary effects.” This ambiguity supports his forecast of two interest rate cuts over the remainder of 2025, with a potential first cut in September.

Kashkari added that if data indicate a need for adjustment, the Fed could stabilize rates until they gain confidence that inflation will return to target.

For now, he emphasized the importance of actual inflation and economic data while avoiding a predetermined easing policy to account for potential delayed tariff effects.

Last week, the Fed kept its overnight target rate for lending between banks unchanged at 4.25% and 4.5%. Diminished certainty regarding the outlook has led the central bank to remain cautious, anticipating tariffs could increase inflation while hindering growth and hiring.