Neel Kashkari, President of the Minneapolis Federal Reserve, argued that it is quite possible that interest rates will have to be heavily raised in order to sufficiently reduce inflation. In a Tuesday article, the Federal Reserve official affirmed that the U.S. may be in a situation whereby inflation is everlasting and consequentially needs notably higher rates.
Neel Kashkari, President of the Minneapolis Federal Reserve, suggested Tuesday that there's an approximately equal chance that interest rates could have to rise significantly to combat inflation. He stated in an essay that the economy may possibly come to a "high-pressure equilibrium", whereby continued healthy consumer expenditure paired with an efficient "economic flywheel" could lead to long-term inflation exceeding the Fed's 2% target. Kashkari argued that the decrease in costs thus far cannot be entirely attributed to monetary policy limits. He asked in his post, "Policy Has Tightened a Lot. Is It Enough?", if the monetary policy was indeed restrictive, would certain sectors such as the housing and car markets still be flourishing? The President further indicated that services inflation, apart from rent, has gone down to some degree, but yet remains high, producing a cause for more long-term concern.
Kashkari, known as a previously dovish member of the rate-setting Federal Open Market Committee, expressed the view that there is a 40% probability that policy will need to be tightened, potentially meaningfully, to bring services inflation back to target. Although the market and consumers appear to expect the inflation rate to keep falling, he noted that the "neutral rate of interest may have risen", thus necessitating tighter policy. Comments made on the same day by JPMorgan Chase CEO Jamie Dimon suggested that the benchmark rate may have to go as high as 7%, while other Fed officials have expressed that rates should remain elevated for an extended period. In contrast, the fed funds rate currently stands in a range between 5.25%-5.5%. However, he still assigns a 60% chance of the Fed achieving their "soft-landing" goal, with inflation returning to the target without a recession.
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