Minneapolis Federal Reserve Bank President Neel Kashkari called for maintaining current interest rates until greater clarity emerges on how President Donald Trump‘s tariff policies will impact inflation, signaling continued monetary policy caution amid trade tensions.

What Happened: Speaking at a Bank of Japan conference in Tokyo on Tuesday, Kashkari warned against overlooking tariff-induced price shocks, emphasizing the Fed’s 2% inflation target remains paramount after four years of elevated consumer prices.

Kashkari stated that the ongoing “healthy debate” within the Federal Reserve centers on whether policymakers should treat tariff impacts as transitory inflation shocks while prioritizing economic growth through rate cuts. However, he positioned himself among officials opposing this approach.

“It may take months or years for negotiations to fully conclude, and there could be tit-for-tat tariff increases as trading partners respond to one other,” Kashkari said. He argued that maintaining the policy rate at 4.25%-4.50% provides an appropriate stance until tariff trajectories become clearer.

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Why It Matters: The Fed has held rates steady since December as officials assess Trump’s sweeping trade policies, which threaten both higher inflation and slower economic growth.

Kashkari’s previous warnings about shifting global investor sentiment add weight to his position. In April, he noted unusual market dynamics where Treasury yields surged while the dollar weakened, suggesting America may “no longer be the most attractive place in the world to invest.”

Market participants price 82% probability of three rate cuts by year-end. However, Bank of America’s Mark Cabana suggests markets expect excessive easing given economic resilience indicators.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.