Fed Official: Government Spending ‘Contributed To’ High Inflation, Rate Cuts Delayed

Neel Kashkari, president of the Minneapolis Federal Reserve Bank, recently reinforced the notion that interest rate cuts seem unlikely this year, despite predictions made at the end of 2023. Speaking at the Barclays-CEPR International Monetary Policy Forum in London, Kashkari stated that inflation is currently moving sideways and that the U.S. economy would need to see “many more months of positive inflation data” before considering rate cuts.

During an interview with CNBC Europe, Kashkari acknowledged that government spending has been “one of the factors that has contributed to the high inflation,” although he emphasized that supply-side issues, such as the services sector shutdown during the pandemic and Russia’s invasion of Ukraine, were more significant factors.

Kashkari also noted that the U.S. economy has remained remarkably resilient, with strong GDP growth and consumer spending, despite earlier forecasts of a recession. This resilience, coupled with a robust housing market, has led him to believe that there is no rush to implement rate cuts.

The Federal Reserve’s decisions to maintain interest rates have effects, on American consumers leading to increased costs for borrowing money as default rates are on the rise. Even though the central bank considers factors Kashkari stressed that its primary attention is on affairs especially with projections indicating substantial losses ahead for the commercial real estate industry, in the United States.