Minneapolis Fed President Sees Two Rate Cuts This Year, First in September

The president of the Minneapolis Federal Reserve has expressed the view that the central bank may reduce interest rates twice this year, with the first potential cut occurring in September. This prediction comes with a caveat: the official warns that the impact of tariffs on inflation may be delayed, necessitating a flexible approach to decision-making. The official emphasized the importance of focusing on actual inflation and economic data rather than committing to a specific policy path, given the uncertainty surrounding the effects of tariffs.

The official has maintained their forecast for two rate cuts this year, first made in December when the Federal Reserve lowered interest rates by a full percentage point over the last four months of the year. At that time, the official predicted only two rate cuts for the year, citing uncertainty about whether inflation would continue to decline. Despite the lack of clear evidence that tariffs have significantly impacted prices, the official remains concerned about potential future effects.

The official highlighted the resilience of the U.S. economy in the face of higher-than-expected tariffs announced in April. They noted that the labor market has shown signs of "slowing down" and that business leaders have indicated a reluctance to pass on tariff costs to consumers. However, if trade agreements are not reached and tariff rates remain high, businesses may have no choice but to do so. The official also pointed out that the time it takes to transport goods from Asia to the U.S. is another factor that could delay the visible impact of tariffs.

Even if the Federal Reserve resumes rate cuts in September, the official stressed that the central bank should not be constrained by a specific policy path. Instead, the official suggested that the policy rate should be maintained at a new level until there is greater confidence that inflation will return to the target range. This approach underscores the need for flexibility in monetary policy, allowing the Federal Reserve to respond to changing economic conditions and data.