Neel Kashkari, President of the Minneapolis Fed and a 2026 FOMC voter, indicated that current U.S. interest rates may already be approaching the "neutral rate," a level that neither stimulates nor restrains the economy, and that the Federal Reserve's future policy direction will hinge on incoming economic data.
Speaking in a CNBC interview on Monday, Kashkari noted that over the past few years, markets and policymakers widely anticipated a significant slowdown in the U.S. economy, but it has proven far more resilient than he initially expected. He pointed out that since the economy continues to show strong growth despite high interest rates, it suggests that monetary policy's restraining effect on economic activity may be less pronounced than thought.
"This leads me to conclude that current monetary policy is likely very close to a neutral stance," Kashkari stated.
Federal Reserve officials have previously signaled that, following three consecutive interest rate cuts by the end of 2025, they are highly likely to hold rates steady this month. According to the minutes from the Fed's December meeting (released on December 30), most officials believe there is still room for further rate cuts as inflation continues to recede, but there are significant disagreements regarding the timing and extent of those reductions.
Economic data released since the December meeting show that the U.S. unemployment rate rose to 4.6% in November, its highest level since 2021, while consumer price increases came in below market expectations; these factors bolster the argument for continued rate cuts. However, on the other hand, the U.S. economy's growth rate in the third quarter was the fastest in two years, which has also heightened market concerns that inflation could potentially resurge.
Kashkari said the Fed requires more data to determine whether inflation dynamics or labor market changes are the dominant influence on the economy, "and then, starting from a neutral position, adjust policy in the necessary direction."
He also pointed out that the job market has clearly cooled, and the primary risk for inflation lies in its persistence—factors like tariffs can take years to fully transmit their impact on prices. In his view, the risk of the unemployment rate rising further from its current level is equally significant. Although inflation has moderated, the pace of decline remains slow, and anxiety among middle- and low-income groups stems mainly from inflationary pressures.
When discussing personnel matters at the Fed, Kashkari said he does not know whether Chair Powell will remain after his term as Chairman ends. Furthermore, he expressed no concern about the risk of Federal Reserve Regional Bank Presidents facing dismissal and disagreed with U.S. Treasury Secretary Besant's view that "Regional Fed Presidents do not adequately represent their districts."
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