Minneapolis Fed Chairman Neel Kashkari on Tuesday reiterated the central bank’s commitment to controlling inflation through monetary policy tightening, and said his biggest fear was that continued pressures on prices are underestimated.
Anjali Sundaram | CNBC
Minneapolis Federal Reserve Chairman Neel Kashkari said Monday he was ready to hold off on another interest rate hike next month, but cautioned against reading too much in a break.
“Right now, it’s a tight two-way call, relative to another June stimulus or a jump,” the central bank official said on CNBC’s “Squawk Box.” “Some of my colleagues have talked about jumping. The important thing for me is not to signal that we are done. If we did, if we were to jump in June, it does not mean that we are done with our tightening cycle. That means from me, we get more information.”
Markets are currently pricing in a roughly 83% chance that the Federal Open Market Committee responsible for setting rates will delay what would be an 11th straight hike when it meets on June 13-14, according to the CME Group’s FedWatch futures price tracker.
Beyond that, traders see the Fed likely cutting rates by about half a percentage point before the end of the year, a nod to lower inflation and a slowing economy. economy.
Central bank officials have been unanimous in saying they don’t expect any cuts this year. Kashkari said that if inflation does not come down, he would favor another rate hike.
“Will we then start going up again in July? Potentially, and so that’s the most important thing for me is that we don’t take it off the table,” he said.
“The markets seem very optimistic about the rate cut now. I think they believe inflation will go down, and then we can react to that. Hopefully they’re right,” he said. added. “But no one should be confused about our commitment to bringing inflation down to 2%.”
Fed Chairman Jerome Powell suggested on Friday that recent strains in the banking system could slow the economy enough that policymakers can afford to be less aggressive.
Kashkari said it was possible, although he added that so far there had been little sign of a more macroeconomic impact from the recent banking problems.
“This is the most uncertain period we have had in terms of understanding the underlying inflationary dynamics. So I have to let inflation guide me and I think we are letting inflation guide us. we needed to go north of 6%” on the federal funds rate, he said. “If banking strains start to bring inflation down for us, then maybe we’re getting closer to the end. I just don’t know right now.”
The Fed’s benchmark funds rate is currently set within a target range of between 5% and 5.25%. In addition to a rate decision, the June meeting will feature an update of the central bank’s forecasts for inflation, GDP and unemployment, as well as the “dot plot” which shows future expectations for rate governors.