Fed Rate Cut Likely in Near Term as Economic Data Weakens.
Minneapolis Fed President Neel Kashkari joins a growing chorus of officials signaling a potential policy shift as soon as September, citing cooling job numbers and consumer spending.
Washington D.C. – Mounting signs of a cooling U.S. economy have prompted a senior Federal Reserve official to argue the case for an interest rate cut “in the near term,” adding to a growing consensus that could see the central bank adjust its policy as early as September.
Minneapolis Federal Reserve Bank President Neel Kashkari, who will be a voting member of the Fed’s interest-rate committee next year, said in a CNBC interview that slowing job numbers and consumer spending are compelling reasons to consider easing monetary policy. “The real underlying economy is slowing,” Kashkari stated, noting that this data has bolstered his confidence that an adjustment to the federal-funds rate may soon be appropriate.
Kashkari’s remarks follow a recent slew of concerning economic reports. The U.S. labor market showed significant signs of weakness, adding only 73,000 jobs in July, far below economists’ expectations. Furthermore, figures for May and June were revised downward by a combined 258,000, bringing the average job growth over the past three months to a paltry 35,000. The unemployment rate also edged up to 4.2% in July.
This slowdown is not confined to the job market. Data indicates that consumer spending, a key driver of the U.S. economy, has also cooled in the first half of 2025.
The Minneapolis Fed president is not a lone voice. A growing number of Fed officials have expressed similar sentiments. San Francisco Fed President Mary Daly recently said she believes the central bank will need to cut rates in the coming months, citing the softening labor market. Daly, like Kashkari, suggested that two rate cuts this year still seem appropriate.
This shift in tone was underscored at the Fed’s last policy meeting. In a rare move, two Fed governors, Christopher Waller and Michelle Bowman, dissented from the decision to hold rates steady, arguing for an immediate quarter-point cut. Their dissent, the first by two governors in over 30 years, was rooted in concerns about a potential deterioration in the labor market and a belief that the inflationary impact of tariffs will be temporary.
A key uncertainty for policymakers remains the “ultimate effects of tariffs” on inflation, Kashkari admitted. He acknowledged the difficulty of this unknown, stating, “how long can we wait until the tariff effects become clear? That’s just weighing on me right now.”Despite this, he suggested that the clearer data points to a slowing economy. Should tariffs lead to a more significant rise in inflation, Kashkari noted the Fed could pause cuts or even raise rates again.
While Fed Chair Jerome Powell struck a more cautious tone in his recent press conference, emphasizing ongoing inflation risks, the weaker economic data has led many investors to anticipate a change in direction. Following the disappointing July jobs report, market expectations for a rate cut at the Fed’s September meeting have surged.
Kashkari indicated that a projection of two cuts this year still seems reasonable. He acknowledged the complexity of a potential “U-turn” in policy but emphasized the need to react to the evolving economic landscape.
