A Federal Reserve official on Thursday raised the possibility the central bank may not cut interest rates at all in 2024, deflating Wall Street’s expectations that several reductions could be in store later this year. 

“If we continue to see inflation moving sideways, it would make me question whether we needed to do those rate cuts at all,” said Federal Reserve Bank of Minneapolis President Neel Kashkari in an interview with Pensions & Investments magazine that was broadcast on LinkedIn.

Kashkari, who said he had previously predicted two rate cuts this year, added, “If we continue to see strong job growth, strong consumer spending and strong GDP growth, then that raises the question in my mind, “Well, why would we cut rates?’ Maybe the dynamics we have right now are sustainable.”

Kashkari’s comments come a day after Fed Chair Jerome Powell said the central bank is likely to lower its benchmark rate later this year, providing relief to consumers and businesses paying sharply higher borrowing costs after 11 rate hikes in two years. But inflation has remained stubbornly above 3% this year, even picking up speed in February, prompting Powell to caution the Fed is wary of cutting rates too quickly. 

“What Kashkari did was deliver a cruel potential reality for the market — that inflation remains stubborn — and the Fed, not wanting to repeat the policy errors of the 1970s, may be forced to retreat from suggesting a rate-easing cycle,” Quincy Krosby, chief global strategist for LPL Financial, said in an email.

Sticky inflation and stronger-than-expected economic data “keeps the Fed speakers on higher alert, such as Khaskari, who said he penciled in two rate cuts in the dot plot but keeps the option of ‘no cuts’ if inflation stalls,” noted Ben Emons, senior portfolio manager at NewEdge Wealth in a research note. 

Emons noted that stocks took a dive after Kashkari’s 2 p.m. ET interview as investors digested the possibility of no rate cuts in 2024. The S&P 500 shed 1.2%, while the Dow Jones Industrial Average lost 1.4%. 

“The psychology … is about a realization that a Fed staying more restrictive will weaken the economy in the future,” Emons noted. 

All eyes on jobs and inflation data

Two major economic reports will likely garner more attention after Kashkari floated the idea of no rate cuts this year. The March jobs report will be released tomorrow at 8:30 a.m., with economists forecasting that businesses hired 200,000 workers last month, a slowdown from February’s 275,000. 

Inflation data for March will be issued on April 10, a metric sure to be closely watched given that the Fed wants to see the annual inflation rate drift back down to its pre-pandemic level of about 2%. Economists expect prices rose 3.5% on an annual basis in March, which would represent an uptick from the previous month’s 3.2% increase, according to FactSet.

Even so, inflation is slowly easing after hitting a 40-year high of 9.1% in June 2022, but still remains higher than the Fed would like. 

“We ultimately need to see what happens both with the labor market and inflation,” Kashkari added. 

For now, the majority of economists polled by FactSet are forecasting a rate cut from the Fed at its June 12 meeting. If that occurs, it would mark the first interest rate reduction since March 2020, when the central bank moved to stimulate growth as the pandemic was slamming the economy. 

Asked if additional rate hikes are off the table, Kashkari, who described himself as more hawkish than other Fed officials, responded, “No, they certainly are not off the table.”

But that may be a small comfort for inflation-weary consumers battered by high borrowing costs. Added Kashkari, “I don’t think they are likely.”