Minneapolis Federal Reserve President Neel Kashkari expressed his openness to delaying another interest rate hike next month, emphasizing the need to avoid misinterpreting a potential pause.
In an interview on CNBC's "Squawk Box," Kashkari stated that the decision on whether to raise rates in June or hold off was a close call. He mentioned that while some colleagues have suggested skipping a rate hike, it is crucial not to signal the end of the tightening cycle.
Kashkari believes that skipping a rate increase in June would signify a desire to gather more information rather than concluding the tightening process.
According to the CME Group's FedWatch tracker of futures prices, markets currently indicate an approximately 83% probability of the rate-setting Federal Open Market Committee refraining from an 11th consecutive rate hike when it meets on June 13-14. Traders anticipate the Fed may eventually reduce rates by about half a percentage point before the year's end, reflecting expectations of lower inflation and a slower economy.
Although central bank officials have consistently stated that they do not anticipate rate cuts this year, Kashkari mentioned that if inflation remains high, he would advocate for further rate increases. He highlighted the possibility of resuming rate hikes in July and emphasized the importance of not ruling out that option. Despite market optimism about falling rates, driven by the belief that inflation will decrease, Kashkari expressed hope in their projections but urged clarity regarding the Fed's commitment to achieving a 2% inflation target.
Fed Chair Jerome Powell recently suggested that recent stresses in the banking system might sufficiently slow down the economy, allowing policymakers to adopt a less aggressive approach. Kashkari acknowledged the possibility but noted the limited evidence of a macroeconomic impact resulting from the recent banking issues.
Kashkari described the current period as highly uncertain, particularly in understanding the underlying dynamics of inflation. He emphasized the reliance on inflation as a guiding factor for policy decisions. If banking stresses contribute to a decrease in inflation, the Fed might be closer to concluding its tightening cycle, potentially necessitating a funds rate above 6%. However, Kashkari admitted uncertainty and emphasized the need for further evaluation.
Currently, the Fed's benchmark funds rate is set within a target range of 5% to 5.25%. The upcoming June meeting will not only address the rate decision but also provide updates on the central bank's forecasts for inflation, GDP, and unemployment. Additionally, the meeting will include the "dot plot," illustrating the governors' future rate expectations.
Conclusion: Minneapolis Federal Reserve President Neel Kashkari has indicated his willingness to consider delaying another interest rate hike next month, but he advises against reading too much into a potential pause. Kashkari believes that the decision to raise rates in June or hold off is finely balanced, and skipping a rate increase would not signify the end of the tightening cycle but rather a desire to gather more information. While markets predict a high probability of the Federal Open Market Committee refraining from a rate hike in June, Kashkari emphasizes the importance of not ruling out future rate increases and maintaining a commitment to achieving the Fed's inflation target. The overall economic outlook remains uncertain, and Kashkari stresses the reliance on inflation data to guide policy decisions. As the June meeting approaches, attention will be focused on the Fed's rate decision, updated forecasts, and the governors' future rate expectations.
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