Minneapolis Federal Reserve President Neel Kashkari has indicated that the U.S. central bank may soon stop lowering interest rates, a move that could impact borrowers considering new loans in 2026. In an interview with CNBC on January 5, Kashkari said, “My guess is we’re pretty close to neutral right now.” He will serve as a voting member of the Federal Open Market Committee (FOMC) this year.
Determining when the Federal Funds Rate reaches its “neutral” level is a key focus for policymakers. The neutral rate, often called r-star (r*), is the interest rate at which monetary policy neither stimulates nor restrains economic growth and keeps inflation stable around the Fed’s 2% target. Most Fed officials estimate this long-run neutral rate to be between 2.5% and 3%, but when adjusted for inflation, it could be as high as 4.5% to 5%. The current Federal Funds Rate stands between 3.50% and 3.75%.
The FOMC reduced the funds rate three times in late 2025 by a total of 0.75 percentage points. After the most recent cut in December, Fed Chair Jerome Powell stated that monetary policy was “within a broad range of neutral.”
Looking ahead, the Fed’s median projection suggests only one more quarter-point cut in 2026, potentially bringing rates down to about 3.25% to 3.50% by year-end. Market expectations are slightly more optimistic about further cuts, projecting two reductions that would lower rates closer to 3%.
President Donald Trump has criticized Powell and the FOMC over their reluctance to bring rates down to around 1%. The administration argues that lower rates would help revive the housing market and decrease interest payments on federal debt, which currently totals between $38.4 trillion and $38.5 trillion.
Kashkari emphasized uncertainty over whether current monetary policy is sufficiently tight or loose: “We just need to get more data to see which is the bigger force. Is it inflation or is it the labor market? And then we can move from a neutral stance, whatever direction is necessary,” he said.
He added concerns about persistent inflation and risks related to unemployment: “I think inflation is still too high. And the big question in my mind is, how tight is monetary policy?” Kashkari noted that despite expectations for an economic slowdown in recent years, growth has remained resilient—suggesting current policy may not be exerting significant downward pressure.
Currently, unemployment stands at 4.6%, while core inflation recently measured at 2.8%. However, CNBC has raised questions about data accuracy due to disruptions from a government shutdown.
“Inflation risk is one of persistence, that these tariff effects take multiple years to work their way all the way through the system, whereas I do think there’s a risk that the unemployment rate could pop from here,” Kashkari said.
The next FOMC meeting will take place on January 27-28. According to CME Group’s FedWatch Tool, there is a roughly 16% chance of another quarter-point cut at that meeting.
This story was originally published January 5, 2026 at 5:37 PM.
