Minneapolis Fed President Kashkari: Tariffs will likely only have a one-time effect on inflation

Core Viewpoint - Minneapolis Fed President Neil Qashqari anticipates two more rate cuts from the central bank this year, despite concerns about inflation and the Fed's commitment to its 2% target [1][2]. Economic Outlook - Qashqari expresses concern over potential erosion of public belief in the Fed's commitment to the 2% inflation target, especially as rate cuts are considered while inflation remains elevated [2][4]. - The Fed does not expect to hit its inflation target until 2028, indicating a long-term approach to monetary policy [3]. Inflation Dynamics - Housing services inflation is on a steady decline, and there is confidence that both housing and non-housing services inflation will continue to decrease due to downward wage growth [6][7]. - Core goods inflation had previously turned negative but has risen again due to tariffs, which are viewed as a potential one-time effect rather than a persistent issue [7][8]. Fed Independence - There is a widespread appreciation for the importance of Fed independence in maintaining low inflation expectations and defending the dollar, with confidence that it will be protected from short-term political influences [10][11]. Market Reactions - Despite rate cuts, the long end of the yield curve has remained unresponsive, suggesting that the neutral rate of interest may have increased [14][15]. - Financial markets appear exuberant, with low credit spreads and a resurgence of meme stocks, indicating a disconnect between labor market signals and market behavior [17][18].