Minneapolis Federal Reserve Bank President Neel Kashkari commended the surprising resilience of the U.S. economy in the face of recent Federal Reserve (Fed) borrowing rate hikes. Speaking at an event hosted at the Wharton School of Business on Monday, Kashkari asserted that the Fed must continue its course of incrementally raising borrowing rates to rein in inflation and bring it down to the targeted 2%.
“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” remarked Kashkari, widely perceived as a more hawkish figure within the Fed’s policymaking circles.
During the recent Fed meeting, there was no alteration in the prevailing borrowing rate range, but a consensus among the majority of policymakers indicates an anticipation of one more rate hike in the near term. Notably, central bankers are now considering prolonging their policy rates beyond initial projections, with one policymaker even hinting at rates potentially surpassing 6% by 2024.
Kashkari expressed astonishment at the sustained momentum in consumer spending, despite enduring six rounds of rate hikes since 2015. He reasoned that should inflation exhibit signs of deceleration in 2019, corresponding adjustments in rates would be necessary. The steadfastness of Minneapolis Fed President Neel Kashkari underscores the Fed’s unwavering commitment to reinstating inflation to the coveted 2% target. In July, inflation, measured by the Fed’s preferred metric, stood at 3.3%.
The Federal Reserve now faces the delicate challenge of striking a balance between managing inflation and fostering economic expansion. As the Fed implements its measures, close scrutiny of their outcomes is imperative, particularly in relation to the heightened borrowing rates. Depending on the economy’s sustained resilience, the Fed may either adhere to its policy of gradual rate increases or make necessary adaptations to maintain the inflation rate.
Source: Reuters
