December rate cut relies on inflation data: Fed Official

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, stated that he will evaluate upcoming inflation data to assess whether an additional rate cut would be appropriate at the Federal Open Market Committee’s (FOMC) December meeting.

When asked what could prompt policymakers to pause in December, Kashkari explained, “There would have to be a surprise on the inflation front to change the outlook so dramatically.”

“If we saw inflation surprises to the upside between now and then, that might give us pause,” Kashkari said on Nov. 12 at the Yahoo Finance Invest conference. “It would be hard to imagine the labor market really heats up between now and December. There’s just not that much time,” he added.

On Nov. 7, the US central bank lowered interest rates by a quarter percentage point, marking its second consecutive cut. While Federal Reserve officials' projections from September indicated quarter-point cuts at both the November and December meetings, investors have scaled back expectations for a rate reduction at the December meeting, due to stalled progress on inflation and robust growth.

A recent report showed that the Fed's preferred measure of underlying inflation rose in September by the largest amount since April. A slowdown in hiring in October was largely attributed to the impact of hurricanes and a labor strike, while consumer spending remained strong, and the economy grew at a solid pace in the third quarter.

Kashkari reiterated that the economy is strong, but inflation has not yet fully reached the Fed’s 2% target. He suggested that it might take a year or two for price increases to align with that target, especially given the above-average pace of housing inflation, though he called a cooling there “encouraging.”

The Minneapolis Fed chief also noted that the neutral interest rate — the rate at which monetary policy neither stimulates nor restrains the economy — could be higher now, given stronger productivity growth. This could lead policymakers to reduce rates at a slower pace than originally expected in the coming months.

While the precise level of the neutral rate remains uncertain, Kashkari said policymakers will gain a clearer understanding of it over the next year, adding that current policy is “modestly restrictive.”