Minneapolis Fed President Neel Kashkari indicated that if inflation continues to cool, one or two interest rate cuts later this year could be appropriate. However, he noted that the conflict in the Middle East might create conditions that justify maintaining the current pause in policy adjustments for a longer period.

Kashkari reiterated in a recent interview that he views the current federal funds rate range of 3.5% to 3.75% as close to a "neutral level"—neither stimulating nor restraining the economy. He explained that before the recent escalation of conflict, inflation had been gradually declining, reducing the need for a restrictive interest rate policy. Prior to the Iran-related events, economic conditions appeared to be moving gently in the right direction. At the same time, the labor market has shown signs of stabilizing with a slight softening, without contributing to inflationary pressures.

Kashkari pointed out that the ongoing conflict could complicate this outlook, though it is still too early to assess its full impact. He compared the current situation to the 2022 Russia-Ukraine conflict, which triggered a global commodity shock and demonstrated that such disruptions could be more severe and prolonged than initially anticipated.

Kashkari recalled, "At that time, I was on the side of viewing it as temporary. It was indeed temporary, but it turned out to be more severe and lasted longer than we expected. Do we really want to go through a 'temporary 2.0' scenario?"

Following three rate cuts last year, the Fed held rates steady at its January meeting. It is widely expected that the central bank will maintain this stance at its upcoming March 17–18 meeting. A stabilizing labor market and the desire to see further progress on inflation had already made rate cuts before summer unlikely. The conflict involving Iran adds another reason to wait.

As a voting member of the Federal Open Market Committee this year, Kashkari noted that a sharp rise in oil prices could create conflicting pressures. Higher energy costs might fuel inflation, supporting a tighter policy stance, while a potential decline in confidence and spending could argue for easier policy. Without a clear way to gauge which effect will dominate, he suggested there may be stronger grounds for keeping policy unchanged for now.

Kashkari also mentioned that in the Fed’s December quarterly economic projections, he had anticipated one rate cut this year. He believes it is reasonable for the Fed to maintain a so-called "easing bias"—signaling in its overall communication that the next move is more likely to be a cut than a hike. "I have no problem with that," he said, "but developments in the Iran situation and their impact on oil and other commodity prices could somewhat overturn that outlook."