Fed Kashkari: US Labor Market Cooling but Still Healthy, Interest Rates Could Slightly Decrease in 2025

Neil Kashkari, president of the Minneapolis Federal Reserve, said on Friday that although the US labor market has cooled somewhat, it remains strong, and he expects interest rates to "moderately" decrease by 2025. "This is still a good labor market," Kashkari said in an interview. "It's not as hot as it was one or two years ago," but he added, "the economy is still strong, and business confidence is optimistic." Kashkari's comments came as the latest data from the US Bureau of Labor Statistics showed that job growth in January was below market expectations. However, nonfarm payroll data from December was revised upward, and the unemployment rate fell to 4%, the lowest level since May of last year. In addition, average hourly wages in January increased by 0.5% compared to the previous month, the largest monthly increase since August of last year, indicating that wage growth still has some resilience. Like other Federal Reserve officials, Kashkari is cautious about the outlook for future interest rate policy, especially considering the policy uncertainty that the Trump administration may bring. He noted, "We are currently in a very favorable position to keep rates steady until we get more specific information about tariffs, immigration, and tax policies." He expects the federal funds rate to decrease moderately by the end of this year. At the Fed's meeting on January 28-29, it was decided to keep interest rates unchanged, after having cut rates by a cumulative one percentage point in the last three meetings of 2024. Although the market has been expecting further rate cuts, most Fed officials believe that the pace of rate cuts this year will slow down due to inflation not yet reaching the 2% target level and the labor market remaining healthy. In December of last year, the median forecast of 19 Fed officials showed that there is a possibility of only two rate cuts in 2025. Additionally, the Trump administration's policies, including restrictions on immigration, tax cuts, and tariff adjustments, may have an impact on economic growth and inflation, leading to reduced expectations of Fed rate cuts in 2025 in the market.