Minneapolis Fed President Neel Kashkari posted a message on the bank’s official website on Tuesday (26th) saying that he believes there is a 60% chance that the Federal Reserve (Fed) can reduce inflation to 2 % target without causing serious harm to the economy, and there is another 40% chance that inflation may become entrenched and require further interest rate increases to control it.
Referring to a soft landing scenario, Kashkari said another 1% (25 basis point) rate hike may be necessary later this year before the Federal Open Market Committee (FOMC) keeps policy rates at that level long enough. time to bring inflation back to target within a reasonable period of time.
Kashkari pointed out that this is the case where significant progress has been made on inflation and the labor market, which can quickly complete the central bank’s interest rate hike cycle and achieve the well-known soft landing of the economy.
On the other hand, the inflation rate remains near 3%, but there is a 40% chance that continued growth in consumer spending will continue to increase pressure on prices. In this case, further interest rate increases will be needed to control it. In that case, Kashkari said the Fed would have to push the federal funds rate higher, possibly higher than what makes sense.
However, he wrote in the article that the Fed does not need to make this decision now. It can observe the substantial progress made in reducing inflation in the next few months to determine which of the above two situations is dominant.
The Fed last week kept its policy rate unchanged at a range of 5.25%-5.50%, but most policymakers suggested another rate hike may be appropriate before the end of the year. Kashkari recently stated that he is one of the majority, and he is a voting member of this year’s FOMC.
Although the Fed has raised interest rates by 5.25 percentage points in the past 18 months, the U.S. economy has shown surprising resilience in recent months, and Fed policymakers are increasingly confident that with just a little more tightening, they can avoid a recession and target of reducing inflation to 2%.
To that end, policymakers believe interest rates will remain higher for longer than they were three months ago, with most expecting them to remain above 5% by the end of next year.
However, the financial market’s expectations for interest rate trends are more moderate. According to the pricing of short-term interest rate futures, the probability that the Fed will no longer raise interest rates is about 60%, and pointed out that the Fed’s policy interest rate at the end of next year will be about 4.64%.
2023-09-26 17:00:05
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