Source: Finance Association
① The hawkish representative in the Federal Open Market Committee (FOMC) and Minneapolis Federal Reserve Chairman Kashkari warned that current interest rates may not be enough to return inflation to the target level of 2%; ② Kashkari said he would raise the long-term neutral interest rate from 2% to 2.5%. At the same time, he stressed that the Federal Reserve must formulate policies based on short-term neutral interest rates.
Just as Federal Reserve officials have been sending dovish signals frequently recently, the hawkish representative in the Federal Open Market Committee (FOMC) and Minneapolis Federal Reserve Chairman Kashkari warned that current interest rates may not be enough to restore inflation to the target level of 2%.
The Federal Reserve's official website published an article signed by Kashkari on Tuesday. Kashkari has no right to vote on monetary policy this year. In the article, he questioned whether current interest rates are sufficiently restrictive. The reason is that the inflation data so far this year has continued to be higher than expected, showing how stubborn the inflation is.
Kashkari wrote, “My colleagues and I are certainly happy to see the resilience of the job market, but given the high inflation data for the most recent quarter, this raises questions about how restrictive monetary policy really is.”
The Federal Reserve remained on hold during last week's interest rate meeting, maintaining the federal funds rate target range of 5.25% to 5.50%, which is the highest interest rate level in 20 years. Since July of last year, policymakers have kept interest rates unchanged for six consecutive times.
Kashkari pointed out that as housing inflation continues to be high, neutral interest rates may be in a higher position in the short term, which means the Federal Reserve may need to do more to calm inflation. The so-called neutral interest rate refers to the level of interest rates that neither stimulate the economy nor slow down the economy.
“Given that housing is a key channel for monetary policy to influence the economy, the resilience of housing inflation raises questions about whether policymakers and the market have misunderstood neutral interest rates, at least in the short term.”
Kashkari said he raised the long-term neutral interest rate from 2% to 2.5%. At the same time, he stressed that the Federal Reserve must formulate policies based on short-term neutral interest rates.
Kashkari added, “The current uncertainty of neutral interest rates poses a challenge to policy makers.”
According to previously released data, the US core personal consumption expenditure price index (PCE) rose 2.8% year on year in March, higher than the 2.5% growth rate at the beginning of this year. Core PCE is the Federal Reserve's preferred measure of inflation.
Kashkari also said that policymakers are most likely to keep interest rates unchanged for a longer period of time; if inflation becomes entrenched, they may raise interest rates if necessary; they need to see multiple positive inflation data to help the Federal Reserve start cutting interest rates.
On the day before Kashkari's article, New York Federal Reserve Chairman Williams and Richmond Federal Reserve Chairman Barkin also delivered speeches.
Unlike Kashkari, Williams and Barkin both made dovish voices. Williams said that monetary policy is currently in a very good position, and the Federal Reserve will definitely cut interest rates in the end. Barkin also said that the current interest rate level is sufficient to achieve the goal of reducing inflation.
editor/tolk