Another Fed official throws cold water on hopes for rate cuts

Another Federal Reserve official has expressed skepticism about imminent interest rate cuts, citing a strong labor market as a reason to hold steady.

Minneapolis Federal Reserve President Neel Kashkari told CNBC on Tuesday he’d like to see at least a few more months of inflation data before dialing back rates.

“Right now we're in a good position because the labor market remains strong in the U.S.,” Kashkari said. “So we have the luxury of being able to sit here until we gain confidence on where inflation is headed.”

Steady unemployment rate gives the Fed some breathing room

The U.S. job market continues to surge as employers added 303,000 jobs in April. The unemployment rate remains steady at 3.9 percent, fluctuating within a narrow range of 3.7 to 3.9 percent since August 2023.

Usually, when inflation falls, more people lose their jobs, so it’s hard to tell if this is a canary in the coal mine or a simply an oddity. Either way, this unusual situation gives the Fed more time to understand what’s going on.

Until the data makes it clear inflation decline has enough momentum to make it down to 2%, Kashkari says he ‘can’t rule anything out’ — even a rate hike.

“Is the disflationary process continuing or are we landing to a sort of 3% inflation level? I think it’s still too early to know,” he said.

“Can we get it down to 2% or does monetary policy need to do the rest of the work?”

Kashkari also pointed to GDP growth, consumer resilience, and growing home prices as signs to play the waiting game before taking action.

Economists have now adjusted their expectations, too

Late last year, a recession seemed imminent, but the economy defied expectations and grew instead. Earlier in 2024, some economists predicted as many as six rate cuts. Now many of them are crossing their fingers for one or two.

Nearly two-thirds of economists in a recent Reuters poll believe the first Fed rate cut will be in September to somewhere between 5.00%-5.25%. This is an increase from just over half of economists expecting a September cut in the previous month's survey .

However, other Fed officials have warned that the fight against inflation could stretch into 2025.

More from Creditnews:

• 'Buy now, pay later' lenders must now offer the same dispute protections as credit cards
• JPMorgan: We are in ‘selective recession’ that only affects poorest Americans
  
• Inflation is hitting families with young children most, Fed study shows
• Major U.S. lender introduces zero-down mortgage: lifeline or red flag?
• Home prices continue to defy gravity, new data shows