Minneapolis Fed President Neil Kashkari reiterated the central bank’s commitment to contain inflation by tightening monetary policy, and said sustained price pressures were underestimated as a major concern.
Anjali Sundaram | CNBC
Minneapolis Federal Reserve Governor Neil Kashkari said Tuesday that January’s explosive job growth shows the central bank has more to do to keep inflation in check.
This means that the Fed’s benchmark borrowing rate will likely rise from its current target range of 4.5% to 4.7% to 5.4%, which means it will continue to raise rates.
“We have work to do. We know that rate hikes can put a lid on inflation,” Kashkari told CNBC in an interview Tuesday morning. “We need to raise interest rates aggressively to cap inflation, and then let monetary policy work across the economy.”
Kashkari said days after the labor ministry reported that nonfarm payrolls had increased by 517,000 in January.
Strong job growth despite attempts by the Federal Reserve to use interest rate hikes to correct what officials called an “imbalance” between supply and demand in the labor market. brought.there are almost 2 open jobs per available worker, and average hourly earnings in January were up 4.4% from a year ago. The Fed believes this pace is unsustainable and inconsistent with its 2% inflation target.
“The data show that there is not much evidence of tightening in the labor market so far,” Kashkari said. “There is some evidence that it is having some impact, but so far It’s modest,” he said.
“We haven’t seen anything lowering the interest rate path yet, but we’re obviously keeping an eye on it and we’ll see how the data goes,” he added.
Kashkari’s suggestion that the federal funds rate needs to be raised to 5.4% compares favorably with other policymakers who suggested in December that the “end-of-life rate”, or end point for rate hikes, would be around 5.1%. to enter a more aggressive slot. The funding rate is what banks charge each other for overnight loans, but it also feeds a number of consumer debt products such as auto loans, mortgages, and credit cards.
Since March 2022, the Fed has raised benchmark fund rates eight times after inflation hits its highest level in more than 40 years. The most recent move was last week, his smallest one-quarter percentage point gain since the first move.
In addition to rate hikes, central banks are allowing up to $95 billion in bond holdings to be taken off balance sheets each month, resulting in nearly $450 billion more tightening.
Still, inflation, while moderate, is well above the Fed’s target, and policymakers indicate further rate hikes are on the way.
“I don’t see that we have made enough progress to declare victory,” Kashkari said.
