Neel Kashkari anticipates two interest rate reductions in 2025, with the first potentially occurring in September. Current data suggest a limited impact from tariffs on prices, economic activity, and the labour market.

If there is a rate cut in September and the tariff effects manifest later, there might be a pause in further reductions. An increase in inflation appears likely, though current inflation levels show improvement towards the 2% target.

Interest Rate Adjustments

More time is required to assess whether the trade war effects are delayed or less significant than expected. The focus should be on actual inflation and real economic data, without firmly committing to a policy of easing.

Kashkari anticipates two reductions to borrowing costs in the following year, with the earliest adjustment potentially arriving as soon as September. At present, data imply that recent trade-related tariffs have yet to cause meaningful disruption to consumer prices, production levels, or employment conditions.

Should the central bank opt for a cut in the early autumn, and the consequences of tariffs emerge shortly after, that sequence might encourage a temporary halt to any further loosening. Inflation is projected to rise somewhat. However, despite this expected increase, current price growth trends continue to draw nearer to the commonly recognised 2% benchmark, showing that previous tightening may be yielding the intended effect.

Whether tariffs will push prices higher over the longer term remains open to further analysis. It may simply be a question of delayed reaction or reduced impact, but we haven’t yet seen clear evidence either way. Policymakers are watching inflation readings and broader indicators to understand if restraint is still necessary or if easing becomes viable over time. For now, decision-making appears to be increasingly driven by recent outcomes rather than longer-term projections.

Economic Data Focus

Given the latest remarks and data, it would not be advisable to expect policymakers to commit definitively to a path of easing, particularly not with inflation data still in flux and the effects of trade measures lingering unresolved. Immediate moves are likely to be cautious.

From our perspective, the message here is pointed: expectations should remain anchored primarily in present numbers rather than predictive estimates. Policymakers are not aiming to guide opinions based on theory, but rather to reflect what’s measurable. One misread report could very well alter the likely source of the next policy shift.

For trading, this suggests less time relying on forecast-based themes. With forward guidance greatly diminished, we must lean more towards reactivity—quick adaptation to each data release, each official statement, and each policy clue. Positions should be short-horizon unless backed by strong confirmation from both economic data and policymaker tone. The emphasis, clearly, is on agility and discipline.

Given this transparency, we may expect volatility during appearances by central figures, particularly around inflation-related disclosures. Bias remains to wait on delivery rather than price in expectations too quickly. Automated responses to rates or inflation could be at risk in these periods if they fail to account for cautious initial shifts. Over-extrapolation may lead to missteps while the institution opts to monitor rather than act.

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