Minneapolis Fed’s Neel Kashkari cools on third rate cut this year

Minneapolis Fed leader Neel Kashkari has cast doubt on his earlier prediction the Federal Reserve Bank will cut interest rates for the third time this year.

Kashkari posited that potential third cut in a September essay, shortly after the Federal Open Market Committee (FOMC) made a quarter-point snip, its first since December 2024. But on Monday evening, he said a rate cut may not be the right solution if Americans are struggling mostly with inflation.

“If people are just feeling economic hardship because of inflation, if we cut rates, that doesn’t help the inflation problem for the American family,” Kashkari said on CNN’s “Erin Burnett OutFront.”

From San Francisco to Dallas to Boston and beyond, Federal Reserve Bank presidents are voicing divided opinions on whether to hold interest rates steady or implement a third cut next month.

The federal funds rate impacts the rates consumers pay on their credit cards, cars and more. Maneuvering that rate is the mechanism the Fed wields as it works to achieve its “dual mandate” of both stable prices and low unemployment. When inflation is high, raising rates can bring down prices. If unemployment is up, lowering rates can spur spending and more jobs.

Inflation and unemployment are usually opposite of each other; if one is high, the other is low. The conundrum now is both are too elevated for comfort.

Kashkari isn’t a voting member of the FOMC this year, but his voice, along with other Fed heads nationwide, does hold influence. The committee also made a quarter-point divot in October and will decide Dec. 10 whether to maintain the federal funds rate at its current 3.75% to 4% range or decrease it further.

The Fed’s inflation goal is 2% and, as of September, it sits at 3%. The latest jobs data from September showed the unemployment rate ticked up to 4.4%, its highest since October 2021.

Another complicating factor is the government shutdown, which delayed crucial data the Fed analyzes to make its rate calls. The October jobs report won’t include the full slate of info and won’t come out until Dec. 16, after the FOMC’s vote.

“This is a particularly tricky time for the Federal Reserve to try to navigate ... given that we just have monetary policy as our only tool,” Kashkari said.

In speaking with many consumer-facing companies, Kashkari said he’s heard their middle class to lower-income customers are feeling the stress of the economy, which comes across in spending behavior.

“People are going to lower-price restaurants. They’re going to lower-price grocery stores. They’re shopping lower-priced brands, for example. So those look recessionary,” he said. “But if you drill into why are they feeling that stress, part of the reason they’re feeling that stress is because of inflation that they’ve experienced over the last four or five years.”

Recently, several Fed leaders have shared their opinion about the potential of another rate cut. On Friday, Dallas Fed President Lorie Logan said she agreed with September’s cut but was not on board with October’s.

“I did not see a need to cut rates at the October meeting,” she said at a conference in Zurich at the Karl Brunner Institute. “And with two rate cuts now in place, I’d find it difficult to cut rates again in December, unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly.”

Federal Reserve Bank of Boston President Susan Collins has also expressed hesitancy for further cuts.

But John Williams, the New York Fed president who is a permanent voter on rate policy and the FOMC’s vice chair, said another cut could help maintain the balance between the Fed’s inflation and unemployment goals.

Earlier Monday, San Francisco Fed leader Mary Daly told the Wall Street Journal she is a proponent of cutting rates since she feels a rapid worsening of the job market is more likely and ultimately harder to control than any inflation spiral.

“On the labor market, I don’t feel as confident we can get ahead of it,” she said.

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