Neel Kashkari on Fed Rate Cuts, Tariffs, and Economic Data

Economic Outlook and Fed Policy

• 💡 The economy is showing signs of slowing, with housing services inflation and non-housing services inflation gently declining.
• 📉 Wage growth is also coming down, and consumer spending is cooling, suggesting the underlying economy is slowing.
• 🎯 The Federal Reserve is focused on data, including wage growth and consumer spending, to guide policy decisions.

Impact of Tariffs on Inflation

• ⚠️ The ultimate effects of tariffs on inflation are uncertain and may not be known for quarters or even a year.
• 📦 Businesses have been working down inventories, which has delayed the full impact of tariffs on prices.
• 📈 There is a risk that tariffs could lead to more persistent inflation, potentially influencing the Fed's rate path.

Federal Funds Rate Path

• 📌 Two rate cuts for the year still seem reasonable, but this is contingent on incoming data.
• ⚖️ Policymakers must balance the cooling economy with the uncertainty surrounding tariff effects on inflation.
• 🔄 The Fed might need to adjust its approach, potentially pausing or even reversing course if inflation ticks up due to tariffs, though this is undesirable.

Data Uncertainty and Labor Market

• 🔍 Revisions to jobs numbers and concerns about survey response rates make economic data more challenging to interpret.
• 🗣️ Despite data uncertainties, wage growth declining is a strong indicator that the labor market is cooling.
• 📊 The Fed uses multiple data sources, including wage data, to form an underlying view of the labor market's direction.