Minneapolis Fed President Neel Kashkari gives economy "A" grade, expects more interest rate cuts by end of year
MINNEAPOLIS — Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, gives the state of the economy right now high marks and expects more interest rate cuts before the year's end after the central bank slashed rates for the first time in four years last month.
The Fed moved to cut its key interest rate by 0.50 percentage points in September, which was welcome news to consumers and Wall Street alike. The move marked a critical moment in its fight against inflation, which was at its highest in a generation two years ago. The half-point move was also steeper than the typical 0.25 percentage point cut.
"Right now I give the economy an 'A.' The economy is changing. We still have a strong labor market, and inflation is coming down. We're not where we want to get to yet on inflation, but we're making progress, and the labor market is still strong, though it's softening," Kashkari said in an interview with WCCO on Thursday. "It's an 'A,' but it's in transition. We want to bring inflation all the way back down, but we want to keep the labor market strong, and that's the tricky balancing act we're trying to walk right now."
Kashkari said as a result of the cut, Americans looking to purchase a home, buy a car or pay off outstanding balances on their credit cards will soon see relief. But he acknowledged that sticker shock at the grocery store persists, and he feels it when he goes to the cash register, too.
"I'm just going to be clear, we cannot get those prices to come back down. What we're hoping is we can stop them from increasing from here—that's not a very satisfying answer," he said. "The problem is, if we actually led to an economy where prices across the economy are falling, it would be an economy that's shrinking. And nobody wants an economy that's shrinking."
He expects additional cuts before the year's end, anticipating the rates would fall so the total reduction is one percentage point for the year.
At a news conference in September announcing the half-point cut, Fed Chair Jerome Powell said the decision was based in part on the central bank's confidence that inflation will soon reach the 2% target. Kashkari this year is not on the committee that voted for the change, but said he supports the decision.
Data from the U.S. Bureau of Labor Statistics shows the unemployment rate has increased slowly since March, but dropped slightly from July to August. Kashkari said it shows the labor market has softened, though it's still strong. The uptick still gives him some pause.
"Normally in America, when the unemployment rate goes up by a little bit, it ends up going up by a lot. Now that so far, that hasn't happened, but we're watching it very carefully to make sure there's not some slowdown around the corner. I'm not seeing it, but we're looking carefully," he explained.
Minnesota's unemployment rate at 3.3% in August is lower than the national average of 4.2%. It's a sign, Kashkari said, of Minnesota's resilience in part due to its diverse economy. And the state typically has fares better when it comes to unemployment than other states across the country.