Federal Reserve Bank of Minneapolis President Neel Kashkari said a strong economy and higher productivity growth could prompt the US central bank to cut interest rates less than expected.
Kashkari, in his first public remarks since he and his colleagues cut interest rates, said it was too early to tell whether the policies of the Trump administration and the new Congress would stoke inflation and ultimately lead to fewer rate cuts. He said the Fed will have to wait and see what policies actually play out before factoring that into their analysis.
“It’s really not going to depend so much on the near-term plans between Congress and the new administration; it’s really about productivity and economic growth,” Kashkari said in an interview on Saturday. the fox the news “If that holds and we’re structurally in a more productive economy going forward, that tells me we probably weren’t cut that far.”
Policymakers cut the benchmark lending rate a a quarter of a percentage point Thursday between 4.5% and 4.75%, marking a second decline.
The US central bank first cut rates in September, and forecasts released at the time suggested policymakers would deliver cuts by a quarter point at their meetings in November and December. Traders have reduced their bets on a cut next month and see fewer cuts this cycle.
The possibility of a near-term pause in rate cuts reflects a mix of economic and political variables. The economy continues to grow at a rapid pace, inflation received in September, and the labor market is cooling – but not as fast as was feared a few months ago. The policies of a confirmed Donald Trump, on the other hand, present new inflationary risks.
US productivity, which allows workers to produce more output, has risen in recent years. Although difficult to measure, increased productivity helps keep a lid on inflation and is critical to long-term economic growth.
Earlier this week, Chairman Jerome Powell said he would not step down if Trump asked him to, a clear sign that he is willing to defend the independence of the US central bank. Kashkari said he is confident that the Fed’s structure, with Washington board governors serving 14-year terms and 12 reserve bank presidents appointed independently, will 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’re going to continue to do that,” Kashkari said. “So I’m not worried about the current dynamics. I think everyone wants inflation to go back and a strong labor market.”
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