Tuesday, December 5, 2023

Kashkari pointed to another Fed rate hike, then kept it high

Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday that, given the surprising strength of the U.S. economy, the Fed would likely have to raise interest rates and keep them high for some time. so that inflation returns to 2%.

“If the economy is fundamentally stronger than we think, that would tell me that prices might have to go up a little bit and then stay higher for a little while longer to cool things down,” he said in a Business School event. Wharton, whose recording was released late Monday.

Last week, the Federal Reserve kept the official interest rate between 5.25% and 5.50% but signaled that it may not be done raising rates yet. Most Federal Reserve officials believe that further increases in interest rates between now and the end of the year will be appropriate.

“I’m one of them,” said Kashkari, who is considered one of the Fed’s toughest monetary leaders.

US central bankers also indicated they are likely to keep interest rates higher than previously thought, with less than half expecting to cut rates below 5% next year and one indicating that the policy rate should end in 2024 above 6%.

Kashkari said that if inflation cools next year as expected, the Fed will have to cut rates to prevent monetary policy from tightening too much. But he also said he’s been surprised by how well consumer spending has held up despite the Fed’s rate hikes so far.

“All members of the Federal Open Market Committee are committed” to reducing inflation to the 2% target of the Federal Reserve, he said. By the Federal Reserve’s preferred measure, inflation was 3.3% in July.

World Nation News Desk
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