Minneapolis Fed President Neel Kashkari on Economy, Tariffs, and Interest Rates

Economic Slowdown and Data Confidence

• 💡 The economy is showing signs of slowing, with housing services inflation gently declining, non-housing services inflation coming down, and wage growth decreasing.
• 📈 Consumer spending is cooling, and jobs numbers suggest the underlying economy is decelerating.
• ⚠️ Kashkari expresses confidence in this data but uncertainty about the ultimate effects of tariffs on inflation, which may not be known for quarters or more.

Impact of Tariffs on Inflation and Policy

• 🎯 Tariffs are an unknown factor that complicates policy decisions, with average effective tariffs climbing.
• 📦 Companies have not raised prices as they did during the pandemic, partly because they are working down inventories of goods imported before tariff increases.
• ❓ The persistence of tariff effects on inflation is a key question for central bankers, and the market may be discounting current tariff levels.

Interest Rate Path and Policy Adjustments

• 📉 Kashkari's current outlook suggests two potential rate cuts by the end of the year, based on the cooling economy.
• ⚖️ However, if tariffs prove more persistent and inflationary, the Fed might implement fewer cuts, pause, or even raise rates again.
• 🔄 The possibility of adjusting rates and then pausing or reversing course is considered, even if it appears to signal a past mistake, to avoid waiting indefinitely for tariff clarity.

BLS Data Integrity and Credibility

• 📊 Kashkari acknowledges the challenges with BLS data, including large revisions and declining survey response rates, but states he and his colleagues use multiple data sources.
• 🗣️ He emphasizes that wage growth is a key indicator of labor market cooling, as it reflects the price of labor.
• 🚫 He expresses no reason to doubt the integrity of BLS data despite recent political controversies surrounding the agency's leadership.

Federal Reserve Decision-Making Dynamics

• 🤝 The Federal Reserve has 19 members who present their best economic assessments, and persuading colleagues is key to influencing policy.
• 🧠 New members can have significant influence if they make compelling arguments that resonate with the committee.