Fed rate cuts outlook: stronger economy means less easing

In his first public comments since he and his colleagues cut interest rates earlier this week, Kashkari noted that it is too early to determine whether the policies of the incoming Trump administration and the new Congress will stoke inflation and ultimately lead to smaller interest rate cuts. . He said the Fed will need to wait to see what policies actually pan out before factoring them into its analysis.

“It won’t depend so much on short-term plans between Congress and the new administration — it’s actually about productivity and economic growth,” Kashkari said Saturday in an interview with Fox News. “If that continues and we’re in a structurally more productive economy going forward, that tells me we probably won’t end up cutting back that much.”

Policymakers lowered the benchmark lending rate by A quarter of a percentage point Thursday to a range of 4.5% to 4.75%, the second decline in a row.

The US central bank cut interest rates for the first time in September, and forecasts issued at the time indicated that policymakers were likely to deliver cuts of a quarter of a percentage point at their November and December meetings. Since then, traders have been reducing their bets on a cut next month, and are seeing fewer cuts overall this cycle.

The likelihood of a pause in interest rate cuts in the near term reflects a mix of economic and political variables. The economy continues to grow at a strong pace, and inflation is increasing I snapped It’s September, and the labor market is slowing – but not as quickly as feared just a few months ago. Meanwhile, the policies of re-elected Donald Trump pose new inflationary risks.

Productivity in the United States, which allows workers to produce more with fewer resources, has risen in recent years. Although difficult to measure, increased productivity helps control inflation and is key to long-term economic growth.

Earlier this week, Bank Chairman Jerome Powell said that he would not resign from his position if Trump asked him to do so, in a clear indication of his willingness to defend the independence of the US central bank. Kashkari said he was confident that the Fed’s structure, with governors on the board in Washington serving 14-year terms and the heads of the 12 reserve banks being independently appointed, would help maintain the central bank’s independence.

Most leaders on both sides of the aisle want us to focus on our economic jobs, and “we will continue to do that,” Kashkari said. “So I’m not worried about the current dynamic. I think everyone wants low inflation and a strong labor market.”