Kashkari Supports Three Rate Reductions as Job Market Worries Surpass Inflation Threats

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, has updated his monetary policy view, now calling for further interest rate cuts in 2025 as he weighs inflation risks against labor market trends. Although Kashkari does not have voting rights on the Federal Open Market Committee (FOMC) this year, he recently advocated for three rate cuts by the end of the year—an increase from his earlier forecast of two. This adjustment stems from his worries about a softening labor market and his belief that former President Donald Trump’s tariffs are unlikely to lift inflation much beyond the current 3.1% annual core rate Kashkari advocates two more rate cuts this year as he sees limited tariff impact on inflation [ 1 ].

Kashkari’s assessment is rooted in how economic expansion interacts with policy neutrality. He puts the neutral real interest rate—where monetary policy neither heats up nor cools down the economy—at 3.1%, attributing this to underlying changes like shifts in productivity and increased capital costs from tariffs Federal Reserve's Kashkari questions number of rate cuts to achieve neutrality [ 4 ]. This indicates that even with several rate reductions, long-term interest rates might not fall much, offering limited support for industries such as housing. Kashkari also stressed the importance of adaptability, mentioning that the Fed should be prepared to pause or even raise rates if inflation rises more than anticipated or if the job market remains stronger than forecast Fed's Kashkari sees two more cuts coming; says central bank remains cautious [ 2 ].

The FOMC’s latest move to lower the federal funds rate by 25 basis points to a 4.00%-4.25% range aligns with Kashkari’s more accommodative perspective. The committee’s vote was 11-1, with only Governor Stephen Miran favoring a deeper cut, highlighting internal disagreements. Kashkari’s push for two additional cuts in October and December is matched by eight other committee members, while an equal number prefer just one or no extra reductions Fed rate decision September 2025 - CNBC [ 5 ]. The Fed’s “dot plot” now signals a median expectation of two rate cuts in 2025, with policymakers projecting one more in 2026 and a gradual move toward a 3% neutral rate by 2027 Fed rate decision September 2025 - CNBC [ 5 ].

Inflation continues to pose major hurdles. While Kashkari concedes that core inflation remains above the Fed’s 2% objective, he points to the recent decline in job creation—unemployment climbed to 4.3% in August—as a more pressing threat to the Fed’s dual goals of stable prices and maximum employment. He partially attributes this hiring slowdown to decreased immigration and also notes weakening labor demand, arguing this warrants further policy assistance Fed’s Kashkari Sees Two More 2025 Cuts Given Hiring Slowdown [ 3 ]. The Fed’s outlook has shifted from calling policy “moderately restrictive” to “more neutral,” echoing the September rate cut and the expected easing path Fed rate decision September 2025 - CNBC [ 5 ].

Political forces have added new challenges to the Fed’s decision-making. Kashkari has voiced worries about threats to central bank autonomy, especially under the Trump administration, which has advocated for deep rate cuts to boost the housing market and lower federal borrowing expenses. While Kashkari reaffirmed the FOMC’s dedication to price stability, he admitted it is difficult to shield monetary policy from political influence Fed’s Kashkari Sees Two More 2025 Cuts Given Hiring Slowdown [ 3 ].

Kashkari’s perspective points to a possible shift in how the Fed balances economic growth and inflation. With the neutral rate now higher than before the pandemic and long-term trends such as demographic changes and productivity growth affecting the outlook, the central bank faces a challenging road in steering the economy. Kashkari’s focus on adaptability and data-based decisions highlights the uncertainty ahead as the Fed moves toward policy normalization in 2025 and the years to follow.