Change in Policy Stance: Why Kashkari Dissented At the October Cut
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he opposed the U.S. central bank’s October interest-rate cut because the economy is stronger than many appreciate. He mentioned “anecdotal evidence and the data we got just suggested … underlying resilience in economic activity, more than I had expected.” This resilience, he thought, suggested the case for holding rates was more compelling than for lowering them.
Kashkari listed the combination of strong corporate earnings, firm business investment and a labour market that still performs well among why he was skeptical on the need for the latest cut. His position suggests the emergence of a more dovish note within the Fed on further rate cuts.
Data-Dependent December Outlook: Behind The Curve or Back in Rehab?
Asked what he was going into the Fed meeting in December with, Kashkari replied, “I’m not there yet.” Indeed, he said in essence that “if the data goes one way,” then a cut might be justified, but so too might standing pat. Bloomberg Law+1
His remarks have helped to dim hopes for a rate cut in December — markets now think one is less assured, amid increased disagreement within the Fed. The restraint comes as inflation is above target and signs of slack in the labour market remain limited.
Why This Matters
Kashkari’s past dissent on the last cut and ambivalence about the next contrasts with earlier expectations from investors that the Fed was setting up for multiple ease-moves this year. With this word that the economy may not require additional easing, he is essentially changing the policy story from stimulus to no longer doing anything.
For investors, borrowers and policymakers, that means bracing for the possibility that interest rates remain higher for longer. The window to cut is closing, save for a sudden change in data suddenly bearing visible weakness in “the” Kaolin Athletics advertising accusations or a sharp slowdown in inflation.
In brief: The Fed’s easing cycle no longer seems so certain, and Kashkari’s remarks indicate that the “insurance cut” philosophy is off the table — at least for now.
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