Fed’s Kashkari highlights inflation as key factor for December rate decision

Minneapolis Fed President Neel Kashkari pointed to inflation as the primary driver that could influence Fed’s policy direction at its next meeting. He stated that any decision to pause rate cut would require an “inflation surprise” before then.

“If we saw inflation surprises to the upside between now and then, that might give us pause,” Kashkari said at an event, noting that significant changes in the labor market are less likely given the limited time before the December meeting.

Kashkari reiterated that while the US economy remains strong, inflation has yet to fully return to the 2% target. He emphasized that it could still take a year or two to achieve this target, particularly given the lingering effects of housing inflation, though he noted recent cooling in that area as “encouraging.”

On the broader outlook for monetary policy, Kashkari described the current stance as “modestly restrictive,” suggesting that it is just slightly contractionary in effect. He acknowledged that the neutral rate remains uncertain but expected more clarity over the coming year as the Fed monitors the economy’s response to rate changes.