Kashkari says U.S. economy showing more strength than forecast

Minneapolis Federal Reserve President Neel Kashkari said on Thursday that he doesn’t foresee a significant increase in inflation or a major labor market slump. However, he noted that the labor market has slightly more downside risk.

At a town hall in Rapid City, South Dakota, Kashkari noted the economic deceleration could be exaggerated, and growth is potentially robust than anticipated.

Kashkari commented, “On the other hand, if I were to guess which mistake we’re more likely making, I think we’re more likely betting that the economy is really slowing more than it really is.”

Kashkari says inflation may not accelerate to 4% or 5%

Kashkari last month said he backed the Fed’s September quarter-point reduction and expects two more by year-end in what he described as safety cuts amid potential but uncertain threats. He noted that policymakers had cut rates last year because they were worried about what appeared to be a weakening job market, only for the economy to prove more resilient than expected.

The Minneapolis Fed head said on Thursday he doesn’t foresee inflation spiking to 4% or 5%, as the math on the tariff impact doesn’t support such a jump. The bigger worry, he added, is that inflation may stay around 3% for an extended period. So far, with inflation at 2.7% in August — still above the Fed’s 2% target — some officials have urged restraint, saying rate cuts could be risky while prices are rising. 

However, Kashkari argued that it’s still too soon to assess tariff-related inflation pressures, as the shutdown has stalled the release of core economic data. Still, he noted that policymakers can still assess the economy using private data and their own network of business and community contacts.

He remarked, “We can make our way through while the shutdown is happening. But the longer it goes on, the less confidence I have that we are reading the economy appropriately, because there’s no substitute for the gold standard government data that we rely on.”

The Labor Department called on some staff members to draft the CPI report

With the government now in shutdown, the Fed may have to confront its next rate decision without key data that might reveal just how much it needs to cut rates.

As the data gap narrows, it’s more likely that the Fed will opt for just one quarter-point rate cut. Similarly, Matthew Luzetti, chief economist in the United States for Deutsche Bank, said: “That leaves you in a place where another [quarter-point cut] is the easiest path forward for October.” 

Nonetheless, this week, Fed Chair Powell emphasized that the Fed’s focus remains on potential labor market weakness. The shutdown formally began on October 1, pausing the release of the September jobs report and pushing back inflation figures that were due this week. Although the Labor Department has asked some staff members to return to work on the CPI report, now expected on October 24, just before the Fed’s meeting. 

While new inflation data will be useful to the Fed, it won’t fill all the gaps. Officials are supplementing it with private surveys and business anecdotes instead. Even so, divisions remain — some worry hiring is slowing sharply, while others see encouraging signs that inflation is easing.

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.