Fed's Kashkari: It’s reasonable to predict Fed won’t cut rates until December


Minneapolis Federal Reserve President Neel Kashkari said on Sunday that it is a “reasonable prediction” that the Fed will wait until December to cut interest rates, adding that the central bank is in a very good position to get more data before making any decisions.

Key quotes

We need to see more evidence to convince US inflation is heading to 2%.

US economy is stronger than in other countries that are cutting rates.

Job market has performed better than expected.

May be more cooling in labor market yet to come, hope it will be modest.

Reasonable that rate cut could come in December.

We are in a very good position to take our time, get more data, before making a decision on rate.

Median projection is for one cut, that's likely to be toward end of the year.

We are in a high pressure economy in some dimensions, but some signs it's cooling.

Net effect of immigration in long-run on inflation is hard to judge

Best thing Fed can do for housing is to get inflation down.

Market reaction 

The US Dollar Index (DXY) is trading 0.03% higher on the day at 105.55, as of writing.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

 

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