Predictions: Interest Rates May Only Decrease Once or Twice This Year

Neel Kashkari, Chairman of the Federal Reserve Bank of Minneapolis, hinted on Wednesday that strong economic data since the beginning of the year may result in the Fed cutting interest rates either twice or potentially only once this year.

In an interview with WSJ Live, Kashkari stated, “In December, I anticipated two rate cuts, each by a quarter point.” Updated predictions will be announced in the next two weeks when the Fed convenes for its policy meeting.

Kashkari added, “The basic scenario is that the Fed will not raise interest rates further.” This viewpoint is shared by all policymakers at the Fed, based on their forecasts released last December.

Kashkari’s colleagues predicted in December that there would be three interest rate cuts this year, bringing the Fed’s policy rate to around 4.5% – 4.75%, down from the current range of 5.25% – 5.5%.

If the economy remains strong and inflation shows signs of increasing higher than expected, Kashkari mentioned that their first course of action would be to keep interest rates at their current level for an extended period.

The Fed genuinely wants to avoid a recession and achieve a “soft landing” as inflation decreases, but the job market remains robust. According to Fed officials, this scenario has occurred in history when the Fed had to contend with excessively high inflation.

However, Kashkari states that now “the economy is performing well and able to withstand this interest rate environment.”

Source: Reuters