Minneapolis Fed President Prefers to Maintain Rates Until Tariffs Are Clear

"Tariff Negotiations Could Take Months or Years"

"Uncertainty Over First Rate Cut in September"

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, stated that he prefers to maintain the current interest rates until tariffs become clearer.

According to Bloomberg on the 27th (local time), President Kashkari pointed out at a Bank of Japan event in Tokyo that "it could take months or years for tariff negotiations to be fully concluded," and inflation risks could increase. He said this outlook "supports the stance that policy rates should be maintained until the direction of tariff imposition and its impact on prices become clear."

He emphasized, "I think this argument is even more convincing because I place the greatest importance on safeguarding long-term inflation expectations."

President Kashkari also revealed that there was a discussion within the Fed about whether the inflation effects of President Trump's tariffs are a temporary shock or a long-term state. Kashkari is not a voting member of the Federal Open Market Committee, the policy-making body, this year.

In an interview with Bloomberg TV the previous day, Kashkari said, "The Fed is in a position to wait until it gets more information." He expressed uncertainty about whether Fed officials would be able to fully assess the situation at the September policy meeting, which the market expects as the timing for the first rate cut.

Fed officials have held rates steady at all three meetings this year, and are expected to do so at the next meeting in June. This follows a 1% point rate cut during the last three months of 2024.

Tariff announcements and ongoing trade negotiations have amplified uncertainty for U.S. consumers and businesses. Companies have halted major spending and investment decisions while waiting for tariff negotiations to be resolved. The freeze in economic activity has made it impossible for policymakers to predict how tariffs and other changes will ultimately affect the economy.

Most U.S. economists expect tariffs to cause inflation, although this could vary depending on the scope and scale of tariffs and the intensity of retaliation by counterparties. They also see tariffs as potentially hindering economic growth, leading to layoffs, and even causing stagflation. Stagflation refers to a situation where recession and rising prices occur simultaneously.

The Fed is expected to face a dilemma of whether to keep rates high to curb inflation or lower them to support a stagnant economy.

Last month, Kashkari said it is the Federal Reserve's mission to ensure that inflation does not persist due to tariffs. He noted that U.S. inflation has exceeded the target of 2% for four years. Therefore, he agreed with his Fed colleagues that price stability might need to be prioritized over labor market activation.

The key to preventing this is to keep U.S. consumers' long-term inflation expectations close to the Fed's 2% inflation target. Policymakers have been sensitive to inflation expectations. One survey showed that expectations for inflation over the next 5-10 years reached the highest level since 1991, but other indicators showed they were close to the Fed's 2% inflation target.

Guest Reporter Kim Jung-ah kja@hankyung.com