Key Takeaways
- Minneapolis Fed President Neel Kashkari stated that inflation remains too high but is slowly trending down, with strong confidence in declining housing services inflation.
- The U.S. job market is "clearly cooling," marked by expectations of low hiring but low firing, though Kashkari cautioned that there is a risk the unemployment rate could "pop" from current levels.
- US Natural Gas Futures saw a significant decline of as much as 6% today, primarily driven by forecasts for less cold weather, near-record production, and ample storage, rather than geopolitical developments.
- Kashkari expressed confidence in the economy's continued resilience and believes American households are in a better fiscal position than two decades ago, while acknowledging the persistence of a K-shaped economic recovery in his district.
- He highlighted that potential Supreme Court rulings on tariffs could introduce new uncertainty and that tariffs are driving up goods inflation, though he perceives the U.S. as approaching an equilibrium on the tariff front.
Minneapolis Federal Reserve President Neel Kashkari provided a comprehensive outlook on the U.S. economy, emphasizing a cooling job market and persistent, albeit slowly declining, inflation. Kashkari noted that inflation is still too high but is "slowly trending down," with particular confidence in the reduction of housing services inflation. Goods inflation has returned to pre-pandemic levels, while services inflation, closely tied to wages, is also gently trending downward.
The job market is "clearly cooling," according to Kashkari, who anticipates a period of "low hiring but low firing." Wage growth is also "slowly tending down." Despite these trends, Kashkari flagged a potential risk that the unemployment rate could "pop" from here, and he is more concerned about labor market weakness than sticky inflation. He suggested that the breakeven hiring rate for the U.S. economy is approximately 75,000 jobs per month.
On broader economic resilience, Kashkari expects the economy to "remain resilient" and believes American households are in a "better fiscal position than 20 years ago." However, he acknowledged that a "K-shaped economy still seems to ring true in my district," indicating uneven recovery across different segments of the population.
Regarding monetary policy, Kashkari stated his "guess is we're close to neutral now." He has supported recent interest rate cuts, increasing his projection for the year from two to three 25-basis-point reductions, but stressed that the Federal Reserve "should not be on a preset course" and must remain flexible to incoming economic data.
External factors also weigh on Kashkari's mind. He indicated that the effects of the situation in Venezuela are "mostly through oil prices," a risk he is "not seeing it so far." He warned that a possible Supreme Court ruling against the administration on tariffs "would create new uncertainty" and that tariffs generally push up inflation while dampening economic activity, posing a challenge for the Fed. Despite this, he believes the U.S. is "approaching a kind of equilibrium on tariff front."
Kashkari also touched upon the role of artificial intelligence, noting that "AI is a big company story from what I hear, not an issue with small companies." He expressed skepticism that AI is rapidly replacing workers, but suggested that massive investment in AI data centers could drive borrowing costs higher.
In a separate market development, US Natural Gas Futures experienced a notable decline of up to 6% today. This drop was primarily attributed to forecasts for less cold weather over the next two weeks than previously expected, coupled with near-record output, ample amounts of gas in storage, and lower global prices. Some reports clarified that this decline was more a reaction to weather forecasts and supply-demand dynamics rather than geopolitical events in Venezuela.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.