Fed’s Kashkari Signals Extended Period of High Rates, Hints at Possible Increase

interest rates

Minneapolis Federal Reserve President Neel Kashkari expressed on Tuesday that current high interest rates are likely to remain in place for an extended period.

Speaking at the Milken Institute conference in Los Angeles, Kashkari noted that while the baseline scenario doesn’t include further hikes, the possibility can’t be entirely dismissed if inflation remains around 3%.

Kashkari clarified, “It’s more likely we’ll maintain the current rate longer than anticipated until we can assess the impact of our policies. However, we could consider raising rates if we are convinced that inflation is persistently entrenched at 3%.”

He emphasized that while there’s a high threshold for any additional rate increases, “there is a limit to when we would need to take further action.”

The possibility of a rate cut was also mentioned, contingent on inflation reducing toward the Federal Reserve’s 2% target or a significant weakening in the labor market. He indicated that several consistent reports showing declining inflation would be necessary to consider lowering rates.

This comes after the Federal Reserve’s decision last week to maintain its benchmark rate at 5.25%-5.50%, the highest in 23 years, during its bi-monthly meeting. The Fed’s latest policy statement highlighted the ongoing challenges in making progress toward a 2% inflation rate.

Fed Chair Jay Powell reassured that an increase in rates isn’t likely the next step. Meanwhile, Kashkari himself is cautious, indicating that although he previously predicted two rate cuts this year, more data is needed before the June policy meeting to decide on adjusting this outlook.

He added, “It’ll be two rate cuts or less.”

Kashkari also commented on the housing market’s unexpected resilience, suggesting it could delay the full impact of monetary policies due to many Americans having secured low rates during the pandemic. This observation supports a more patient approach to future policy adjustments.

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