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Investing.com -- Federal Reserve Bank of Minneapolis President Neel Kashkari maintains his outlook for two interest rate cuts in 2023, with the first reduction potentially coming in September, according to an essay released Friday.
Kashkari noted that cooling inflation would allow the central bank to begin easing monetary policy, though he cautioned that if progress on inflation stalls or reverses, the Fed could pause its rate-cutting cycle until prices ease again.
The regional Fed president acknowledged that tariffs likely will boost inflation as more goods from Asia subject to the largest tariff increases reach U.S. store shelves. While businesses may initially hesitate to raise prices for fear of customer backlash, they will eventually pass on these increases if trade deals don’t lower tariffs.
"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," Kashkari wrote. He added that the Fed could hold rates at new levels until gaining confidence that inflation was returning to target.
So far, economic data has shown "only a modest imprint of the effects of tariffs on prices, activity or the labor market," with inflation continuing to move toward the Fed’s 2% goal. This suggests companies may be finding ways to avoid tariffs through exemptions, adjusted supply routes, or other means.
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