Fed’s Kashkari: Rate cut bar now higher amid inflation risks from tariffs

Minneapolis Fed President Neel Kashkari warned that the unexpectedly high and broad scope of recently imposed US tariffs has created “larger direct economic effect and larger shock to confidence”.

In a blog post today, he noted that this has increased the “hurdle” for Fed to adjust interest rates in either direction. He emphasized that due to the inflationary pressures tariffs are likely to bring in the “near term”, the bar for cutting rates is also “higher” even in the face of rising unemployment.

Kashkari expressed concern that due to uncertainty of escalating trade tensions and retaliatory measures from other countries, “risk of unanchoring inflation expectations seems to have increased notably”.

At the same time, he acknowledged that the demand for investment capital is likely to decline due to weaker growth prospects, which would naturally lower the neutral interest rate (r*). This dynamic could make current monetary policy stance relatively tighter without any Fed action.

Ultimately, Kashkari struck a cautious but flexible tone, noting that while Fed should be especially wary of cutting rates amid rising inflation risks, it must also remain responsive to rapidly changing conditions.

“No monetary policy response, up or down, should be completely off the table,” he concluded.

Full article of Fed’s Kashkari here.