Minneapolis Federal Reserve Bank President Neel Kashkari speaks during an interview in New York, on March 29, 2019.Shannon Stapleton/Reuters
Minneapolis Federal Reserve Bank President Neel Kashkari said Wednesday he is “open-minded” on either a 25 basis point or a 50 basis point rate hike at the U.S. central bank’s next meeting, adding that rates may ultimately need to go higher than the 5.4 per cent level he had thought in December would be adequate.
“I think my colleagues agree with me that the risk of undertightening is greater than the risk of overtightening,” Kashkari told a Sioux Falls Business CEO event. Given that inflation in recent data has not receded as expected, he said, he may need to revise upward his own expected path for future Fed rate hikes.
The Fed raised interest rates last year faster than any time in the last 40 years to bring down high inflation. Policy-makers reduced that pace at their most recent meeting on Jan. 31-Feb. 1. At the time, Fed Chair Jerome Powell noted the beginnings of a disinflationary process, and the central bank lifted the policy rate just a quarter point, to 4.5 per cent-4.75 per cent.
Since then, inflation data has come in stronger than had been expected, with prices by the Fed’s preferred index rising 5.4 per cent in January from a year earlier, faster than in December and far above the Fed’s 2 per cent target.
Meanwhile the labour market has been, in Kashkari’s words, “hot,” with the unemployment rate falling to 3.4 per cent in January, the lowest since 1969.
Fed policy-makers will release their next forecasts for the appropriate rate path at the close of their next meeting, later this month. Kashkari said he is leaning towards pencilling in a path for rates to an end point higher than the 5.4 per cent he had previously seen.