Minneapolis Fed's Kashkari Expects Three Rate Cuts in 2025 Amid Labor Market Risks

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, supports multiple rate cuts in 2025, revising his forecast to three cuts, up from two, in response to risks of a weakening labor market and persistent inflation around 3%. Despite not having a voting role in the Federal Open Market Committee (FOMC) this year, Kashkari participates in discussions and emphasizes that the Fed should remain flexible, potentially pausing or even raising rates if economic conditions warrant. He raised the estimate of the neutral interest rate to about 3.1%, indicating that monetary policy may not be very tight and long-term rates might not fall much even with cuts, which could limit relief for sectors like housing. Kashkari also downplays concerns over political interference in Fed independence, noting that public confidence remains strong. He highlights the uncertainty around inflation's trajectory due to tariffs and supply shocks, but believes inflation is unlikely to rise significantly beyond current levels without major external disruptions. Overall, Kashkari's outlook balances the risk of labor market deterioration against inflation control, advocating for careful, data-driven monetary policy adjustments.