Bloomberg Audio Studios, podcasts, radio news. Debate of a potential US rate cut in December is ramping up as investors look ahead to the latest reading on Wednesday of the FETES Preferred price gauge. Minneapolis Fed President Neil Keshkari told us what key fact is he's watching out four as officials prepared for the final policy call of the year.
Right now, we know that inflation is somewhat above our target. It's running around two and a half two point six percent run rate. Right now, I have some confidence that it's gently trending down, and right now the labor market remains strong. The question, in my mind, the biggest question
is where is the neutral rate environment. You know, we've had relatively high interest rates relatively the prior ten years, and the US economies continue to grow with great resilience, and the labor market has been resilient, And so how do I reconcile the fact that the policy rate has
been relatively high and growth has been sustained. That suggests to me that perhaps the neutral rate environment is higher than it was in the past, and that perhaps monetary policy is not putting as much downward pressure on the economy as I would have expected. And so this is what I'm trying to understand right now is how much downward pressure are we putting on the economy and what is the path for inflation. But right now, knowing what I know today, you know, still considering a twenty five
basis point cut in December. It's a reasonable debate for us to have.
Why not pause? You're talking about how resilient the economy is. You talk about how resilient the labor force is, you talk about how resilient all the factors are. And add to that we have, you know, this rally in the stock market. Why not just pause?
Well, you know, you're making good points that would argue in favor of not cutting rates. On the other hand, if I look at the underlying components of inflation, goods inflation has fallen all the way back down to pre pandemic levels. Services inflation is trending down, and that's tied to wage growth, and wage growth is slowly trending down. And what's left is housing inflation. Housing inflation is still high.
But if we look at forward leading indicators of where housing inflation is likely going, and that's the inflation of new rents that new rental inflation has already come back down, so that suggests that housing inflation ought to come back down. Ultimately, we want to get inflation back down to our two
percent target. We're not aiming to undershoot it, and so we do have to make some judgments about what is the path ahead for inflation, and that's going to be an important determinant on what we do with monetary policy.
We also asked how Trump's star threats could affect global trade and his views on Beijing's battle to revive its economy.
You know, there's obviously the risks of potential tear back and forth between the US and China, which are notable. The other big concern is just the domestic Chinese economy and the slumber that it appears to be in from our analysis, the heavy weight of the housing sector that has been a driver of Chinese growth for so many years is now appears to be weighing down the Chinese economy, and just the struggles that the Chinese economy is facing.
And so I'm just something that I'm watching a lot is what the policymakers in China do and can they get the Chinese economy on a stronger sustainable growth path, you know, reinflating so to speak. Their housing bubble doesn't seem like it's a long term strategy. So what is China's growth strategy? I agree the potential tarots between the US and China and back and forth is something to pay close attention to. But I think China's own domestic challenges are also notable.
Do you think that if China's economy remains leg lost, we could see some contagion and other Asian economies and perhaps even for the afield may get impacted as well.
Certainly possible. I mean, China is obviously a huge economy and of a huge part of the global economy, just grows slowly. That's obviously going to have an imprint on everybody else. For example, commodity markets would be one of the first places that we would see that, whether it's for steel or for iron or other metals or other minerals. So that's something that we're going to pay closer attention to because it just matters a lot for the global economy.
But then I also think many other Asian economies are linked to economies all around the world. I was just looking at some analysis on where the US imports most
of its goods. Of course, China dominated that six ten years ago, and China shared exporting directly to the US has actually fallen quite a bit, and countries like Mexico and other southeastern Asian countries have picked up the slack, and so I'm actually optimistic that other Asian economies could contain need to perform well because they're connected to the US, they're connected to Europe, to South America. But of course China is just so large that what happens in China matters to everybody.
That was Minneapolis FED President Neil Keshkari