Fed’s Kashkari expects two rate cuts this year, with pause possible

Federal Reserve Bank of Minneapolis President Neel Kashkari is sticking to his view that cooling inflation will allow the world's most important major central bank to cut its policy rate twice this year, starting in September.

In an essay released on Friday, Kashkari also signalled that if progress on inflation stalls or reverses the Fed could simply pause its rate-cutting cycle until prices ease again.

Tariffs suggest an inflation boost is "likely coming," he said, as more goods from Asia, subject to the biggest tariff increases, arrive on the shelves of U.S. businesses.

While businesses may not want to risk angering customers by charging more for their wares, they will start passing on price increases in the absence of trade deals lowering tariffs, he said.

In this scenario, the effect of tariffs on inflation may simply arrive later than expected, Kashkari said.

At the same time, Kashkari said, the economic data so far has revealed "only a modest imprint of the effects of tariffs on prices, activity or the labor market," with inflation making renewed progress toward the Fed's 2% goal.

That may suggest, he said, that companies have won exemptions, have adjusted their supply routes, or are otherwise finding ways to avoid the tariffs altogether, limiting the impact on inflation. 

"Those opposing signals have led me to maintain my outlook for two cuts over the remainder of 2025, implying a possible first cut in September, barring some surprising development before then," Kashkari said. 

"If we were to cut in September and then the effects of tariffs showed up this fall, I believe we should not be on a preset easing course" but could adjust to fit the new data, he added.

"If the data called for it we could hold the policy rate at the new level until we gained greater confidence that inflation was headed back to our target."

For now, though, Kashkari said: "We should put more emphasis on the actual inflation and real economic data that we are seeing without committing to an easing policy path in case the effects of tariffs are merely delayed." 

Last week, Fed policymakers left their overnight target rate for lending between banks unchanged at between 4.25% and 4.5%. Uncertainty over the outlook is keeping the central bank on the sidelines amid expectations the tariffs will push up inflation this year while depressing growth and hiring.