The Federal Reserve may need to push its benchmark policy rate above 4.75 percent if underlying inflation does not stop rising, Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday.
“I’ve said publicly that I could easily see us getting into the mid-4percents early next year,” Kashkari said at a panel at the Women Corporate Directors, Minnesota Chapter, in Minneapolis.
“But if we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping at 4.5 percent, or 4.75 percent or something like that. We need to see actual progress in core inflation and services inflation and we are not seeing it yet.”
Most Fed policymakers expect to need to raise the policy rate, now at 3 percent-3.25 percent, to 4.5 percent-5 percent by early next year, based on projections published last month and comments made publicly since then.
Kashkari’s remarks signal a readiness to go even further.
“That number that I offered is predicated on a flattening out of that underlying inflation,” Kashkari said. “If that doesn’t happen, then I don’t see how we can stop.”
So far, data suggests underlying inflation is rising, not falling, despite the Fed’s aggressive rate hikes this year.
Based on recent readings of the consumer price index and other data, economists estimate the core personal consumption expenditures (PCE) price index, which the Fed watches closely, rose 5.1 percent last month from a year earlier, compared with 4.9 percent in August.
The data will be published just a few days before the Fed’s next policy meeting on Nov. 1-2.
Last month Fed policymakers penciled in core PCE to register 4.5 percent at year’s end and overall inflation to be 5.4 percent. The Fed targets 2 percent overall inflation.
With inflation high, the central bank is widely expected to deliver a fourth straight 75-basis point rate hike when it next meets, and traders of futures contracts tied to the policy rate are betting on another large rate hike in December as well.
Federal Reserve policymakers agreed they needed to move to a more restrictive policy stance – and then maintain that for some time – in order to meet the US central bank’s goal of lowering inflation, a readout of last month’s two-day meeting showed.
The minutes of the Sept. 20-21 meeting showed many Fed officials “emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”
At the meeting, many officials said they had raised their assessments of the path of interest rate increases that would likely be needed to achieve the committee’s goals.
That said, several participants in the discussion said it would be important to “calibrate” the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.
At last month’s meeting, Fed officials raised interest rates by three-quarters of a percentage point for the third straight time in an effort to drive inflation down from 40-year highs, and Fed Chair Jerome Powell vowed afterward that they would “keep at it until we’re confident the job is done.”
