In a surprising development, Neel Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis, offered rare glimpses into the central bank’s potential future monetary policy decisions. Kashkari hinted that he would support further interest rate cuts if inflation remains under control and the labor market stays strong.
Interest Rate May Be Lower at Year End: Neel Kashkari
In a CNBC interview today, Fed Bank of Minneapolis President Neel Kashkari shared insights on future interest rate cuts. Kashkari expects inflation to continue its downward trend towards the bank’s target of 2%. This paves the way for a modest interest rate cut by year-end. He posited, “I would expect the federal funds rate to be modestly lower at the end of this year.”
Notably, Kashkari expressed uncertainty over the potential impact of US President Donald Trump’s new policies on the economy and inflation. These policies include stricter immigration controls, tariffs, and tax cuts, which could have far-reaching consequences.
Further, Kashkari underscored the need for caution, advocating a wait-and-see approach. This may allow the Fed to gather more information and assess the potential impact of the policies on inflation and economic growth.
Minneapolis Fed Chief’s Labor Market Insights
While his interview comes shortly after the release of the US job report, the central bank president highlighted the labor market’s solid position. The labor market is showing signs of cooling down, with nonfarm payrolls rising by a modest 143,000 and the unemployment rate holding steady at 4%.
Reflecting on the cooler-than-expected labor report, Neel Kashkari stated,
This is still a good labor market. It’s not as hot as it was a year or two ago, the economy is strong, businesses are optimistic.
Recently, the Bank of England announced interest rate cuts, reducing it to 4.5%, the lowest level since June 2023. According to the Monetary Policy Committee, two additional interest rates may be enough to tackle inflation.
Will Federal Reserve Reduce Interest Rates Further?
Following the two-day FOMC meeting, the Fed announced its decision to keep interest rates unchanged at the 4.25% to 4.5% range. In the interview, the central bank president stated that if inflation data looks promising and the labor market stays robust, he would urge for further cuts.
Moreover, Neel Kashkari believes that the economy’s resilience to high interest rates may indicate a higher neutral rate. The neutral rate is the point at which interest rates neither boost nor hinder economic growth.
How Does Crypto Market React To Neel Kashkari’s Insights?
Currently, the crypto market is exhibiting a slight recovery from the recent turmoil. The total market cap of $3.22 trillion has seen a marginal surge of 1.48% over the last day. The 24-hour trading volume has also seen a notable hike of 11%, at $132.64 billion.
However, top cryptocurrencies like Bitcoin and Ethereum has experienced huge declines of 6.6% and 19.5%, respectively over the past week. XRP, Solana, and BNB have also dropped massively by 20.5%, 17.2%, and 14.8%, respectively, over the same period.
It remains to be seen if the Fed will further reduce interest rate as Neel Kashkari stated, impacting the crypto market.
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