The Federal Reserve’s ongoing battle against inflation may require additional interest rate hikes and an extended period of high rates, according to Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis. Kashkari’s remarks come in response to the surprising resilience of the US economy, which has shown unexpected strength despite the Fed’s efforts to cool it.
At an event at the Wharton School of Business, Kashkari acknowledged that if the economy is fundamentally stronger than expected, it may be necessary to raise rates further and keep them higher for an extended period to effectively combat the inflation and return it to the Fed’s 2%. goal. The Fed recently held its policy rate steady within a range of 5.25% to 5.50%, but signaled that more rate hikes are likely on the horizon.
Kashkari, considered one of the Fed’s boldest policymakers, supports that view and believes another rate hike later this year is appropriate. In addition, US central banks have indicated their intention to keep rates higher for longer than expected. Less than half of them expect to cut rates below 5% next year, and even one suggests the policy rate should end 2024 above 6%.
While acknowledging the potential need for rate cuts if inflation cools as expected next year, Kashkari expressed surprise at the resilience of consumer spending despite the Fed’s rate hikes so far . He highlighted the commitment of all members of the Federal Open Market Committee to return inflation to the 2% target, noting that inflation, as measured by the Fed’s preferred gauge, was 3.3% in july
Kashkari’s remarks underscored the Fed’s ongoing efforts to balance the need to control inflation without causing excessive monetary policy tightening. The resilience of the economy and the persistence of inflation present challenges for the Fed as it navigates the path to price stability.
This article is sourced from and written by AI.
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