Fed's Kashkari: Inflation could lead to Dec rate pause

After years of relatively high interest rates to bring down post-pandemic inflation, the Federal Reserve began to cut rates earlier this year, dropping another 0.25% at the central bank's meeting on November 7, 2024. Now the Federal Reserve is set to enter the new year with a new focus on keeping the economy humming along. Just a week after the 2024 US presidential election, the Federal Reserve Bank of Minneapolis president Neel Kashkari joins Yahoo Finance Senior Reporter Jennifer Schonberger at Yahoo Finance Invest. Kashkari shares his outlook for the economy and what to expect from the Fed in the future, especially with a second Trump presidency on the horizon. The Federal Reserve continues to be surprised by the resilience of the economy, which continues to have a strong labor market and an inflation rate hovering around 2.5%. The Fed cut interest rates by 25 basis points last week, with Kashkari believing that only a surprise upside in inflation could stall further rate cuts at the Fed's December meeting. “Three or four years ago, if you'd said to me, we're gonna raise interest rates by 500-plus basis points, I would've thought that would slam the brakes on the US economy,” says Kashkari, noting that "it hasn't.” When asked about how President-elect Donald Trump's policies might impact the fight against inflation and the Federal Reserve, Kashkari largely takes a wait-and-see stance. On tariffs, specifically, he mentions it would largely depend on how other countries respond and how that ends up feeding into inflation. “The real question is the tit-for-tat between countries if they go back and forth escalating tariffs on each other, that could lead to a longer-term inflationary dynamic,” according to Kashkari. Kashkari acknowledges housing inflation as “the big elephant that is still out there” but believes the trends are encouraging, and the Fed will reach its 2% inflation target.
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