Minneapolis Federal Reserve President Neel Kashkari said Wednesday he was unsure whether the central bank had raised interest rates enough to curb inflation.
Speaking a day after he wrote an article suggesting interest rates may have to rise “significantly” from here to bring prices down, Kashkari told CNBC that a neutral interest rate, or one that neither impedes nor stimulates the economy, may have moved higher.
“I don’t know,” he said on “Squawk Box” when asked whether the current target range for the federal funds rate of 5.25% to 5.5% is “constrained enough” to bring inflation back to the Fed’s 2% target. “It is possible that given the dynamics or the reopening of the economy, the neutral rate could have risen.”
Some of his concerns stem from the fact that sectors of the economy normally affected by rising interest rates appear to be ignoring them.
“So the one thing that makes me cautious that we may not be as constrained as we think is that consumer spending has remained strong, and GDP growth continues to outperform,” Kashkari said. “The two sectors of the economy that are traditionally most sensitive to interest rate hikes, autos and housing, have shown some signs of bottoming out and in some cases are starting to show some recovery which makes me cautious that we may not be as constrained as we are.” “We thought otherwise.”
The comments come one week after the interest-rate-setting Federal Open Market Committee, of which Kashkari is a voting member this year, chose not to raise interest rates but still pointed to another quarter-point hike before the end of the year while lowering its forecast to two cuts per year. Next, half the last forecast in June.
Wall Street fears that continued tightening of monetary policy will push the economy into recession.
But Kashkari insisted that was not the Fed’s goal.
“If we have to keep interest rates higher for longer, it is because the economic fundamentals are stronger than I and I appreciate.” [economic] “The flywheel is turning,” he said. “It is not clear to me that this means a recession is more likely, but rather it may mean that we need a higher rate path to get inflation down to 2%.”
However, he said “we don’t know now” whether the Fed has done enough, adding “we all want to avoid a hard landing” for the economy.
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