Federal Reserve’s Kashkari questions number of rate cuts to achieve neutrality

Federal Reserve’s Kashkari questions number of rate cuts to achieve neutrality

Minneapolis Fed president says higher neutral rate could limit impact of rate cuts as inflation remains elevated.

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Vivian Nguyen
By Vivian Nguyen

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Updated 1:24 p.m. ET

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, expressed uncertainty today about how many additional rate cuts would be needed to reach a neutral policy stance.

Kashkari and other Fed officials now estimate the neutral rate could be around 3.1%, higher than pre-pandemic levels of 2-3%. The elevated estimate suggests fewer cuts might be necessary to reach the theoretical rate where monetary policy neither stimulates nor restrains economic growth.

The uncertainty about the neutral rate echoes debates from the 2010s when rates were held low for extended periods to aid recovery, contrasting with the Fed’s aggressive cuts to near-zero during the COVID-19 era in 2020.

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Federal Reserve’s Kashkari questions number of rate cuts to achieve neutrality

Federal Reserve’s Kashkari questions number of rate cuts to achieve neutrality

Minneapolis Fed president says higher neutral rate could limit impact of rate cuts as inflation remains elevated.

by Vivian Nguyen | Powered by Gloria

Share

Add as preferred source

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, expressed uncertainty today about how many additional rate cuts would be needed to reach a neutral policy stance.

Kashkari and other Fed officials now estimate the neutral rate could be around 3.1%, higher than pre-pandemic levels of 2-3%. The elevated estimate suggests fewer cuts might be necessary to reach the theoretical rate where monetary policy neither stimulates nor restrains economic growth.

The uncertainty about the neutral rate echoes debates from the 2010s when rates were held low for extended periods to aid recovery, contrasting with the Fed’s aggressive cuts to near-zero during the COVID-19 era in 2020.