How Will US Tariffs Affect FED Interest Rate Cuts? Neel Kashkari, One of the Most Hawkish FED Members, Explained!

The escalating tariff tensions between the US and China are causing an increase in high inflation risks and recession expectations.

While the tariff war continues, as there is curiosity about whether the FED will cut interest rates in May, Minneapolis FED President Neel Kashkari explained how the tariffs affected the FED's decision and the inflation situation.

Kashkari stated that the likelihood of the FED lowering interest rates in response to tariffs is lower considering the inflationary effects of tariffs.

Kashkari described President Donald Trump's tariff decision as "much higher and broader than expected." The Fed official also added that he anticipates the taxes will reduce investment and economic growth and increase inflation "at least in the near term."

Kashkari's statement headlines were as follows:

"The barriers to changing the policy interest rate have increased due to tariffs."

Even if the economy and labor market weaken, the bar is still high and there is time to lower interest rates.***

Any upward or downward reaction of the monetary policy should not be ignored.

Ignoring the inflationary effects of tariffs is "very risky".

The primary priority should be to keep long-term inflation expectations stable.

In the short term, inflation will rise, purchasing power will decrease, investments will likely fall, and GDP will contract due to customs duties.

The announced tariffs are much higher and more comprehensive than expected, leading to a greater economic impact and a shock to confidence.

Monetary policy is tightening on its own, which reduces the need for an urgent interest rate hike.

If the uncertainty quickly disappears, I can reconsider my perspective.

Keeping long-term inflation expectations stable should be the top priority.

The FED keeping interest rates unchanged in May is priced at 58.5%, while a 25 basis point cut is priced at 41.5%.