US Federal Reserve’s Kashkari says US central bank must lower inflation pressures

New York - Federal Reserve Bank of Minneapolis president Neel Kashkari stated on September 30 that he anticipates the US central bank will raise interest rates once more, contingent upon the economy's performance, as part of the ongoing effort to lower inflation to its target. Mr. Kashkari explained that the forecast of additional interest rate hikes for the September Federal Open Market Committee meeting is merely a snapshot in time based on the data available at the time of the meeting.

He emphasized that the latest inflation data continues to confirm his assessment, which remains that inflation is currently too high. Throughout his tenure at the Fed, Mr. Kashkari noted that he would have been highly unlikely to foresee five years of persistently elevated inflation, yet the current situation demands action. Nevertheless, he acknowledged that monetary policy is capable of addressing the issue and bringing inflation back to the target.

Following the September 29, market expectations for future interest rate increases softened after New York Fed leader John Williams suggested that while he sees an increase before the end of the year, he does not believe there is an urgent need to tighten monetary policy at present, given the recent hike on September 15-16. Officials at the Fed have raised the overnight target rate by a quarter percentage point to a range between 3.75% and 4% to help curb inflation pressures that have exceeded their 2% target for over five years.

The Federal Reserve officials believe that solid economic growth data and labor market stability provide them with the flexibility to concentrate on their inflation challenge. During the September meeting where rates were increased, officials also indicated that one more hike was planned before the year's end. However, financial markets had been anticipating a more aggressive tightening path prior to Williams' comments on September 29.

As the Fed has been implementing interest rate hikes, bond yields have surged, which could theoretically generate some restraint on the economy, aiding the Fed in its goal to reduce inflation. Fed officials have attributed these yield gains to optimism about the economic outlook, competition for capital due to strong artificial intelligence investments, and uncertainty stemming from the Middle East conflict, which has unsettled energy markets.

Mr. Kashkari acknowledged that while he pays attention to market signals regarding potential further tightening of policy, he remains cautious not to blindly follow these indications, recognizing that numerous factors can influence market judgments.