Fed’s Kashkari: talk of pivot ‘premature,’ on good policy path
2022.11.09 23:36
© Reuters. FILE PHOTO: Minneapolis Federal Reserve Bank President Neel Kashkari poses during an interview with Reuters in his office at the bank’s headquarters in Minneapolis, Minnesota, U.S., January 10, 2020. REUTERS/ Ann Saphir
By Ann Saphir
(Reuters) -Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday said it’s “entirely premature” to discuss any pivot away from the Fed’s current policy tightening, even as he appeared to endorse the possibility of adjusting the size of future rate hikes.
“I think we are on a good path right now: I think we are united in our commitment to getting inflation back down to 2%,” Kashkari said at South Dakota State University’s Ness School of Management and Economics.
“But monetary policy operates with a lag,” he added, referring to the many months that economists estimate it takes before the effect of higher borrowing costs is seen in the economy and on inflation.
By raising rates “aggressively, but taking a few steps, we get to see how the economy evolves, we get to see what’s happening with supply chains, and that reduces the risk that we are going to overshoot our mark.”
The Fed last week raised its policy rate by 75 basis points to a range of 3.75%-4%, battling inflation that’s higher than it has been in 40 years.
Fed Chair Jerome Powell signaled that future rate hikes could come in smaller increments as central bankers take into account policy lags. But he also signaled that, ultimately, to bring down inflation the policy rate would likely need to go higher than the 4.6% that policymakers forecast just a couple months ago.
Kashkari similarly emphasized that the Fed was far from done in raising rates.
“Any talk of pivot is entirely premature,” he said. The economy was a “long, long, long way” from the point where the Fed’s two goals would be in conflict, forcing a pivot on policy, he said. The goals are stable prices and maximum employment.
In the meantime, he said, rates likely still needed to rise, but by how much was an open question.
“At the next meeting, which is mid-December, I don’t know what we are going to do,” he said. “There’s a lot of talk in the public about might we raise rates by 50 basis points, might we raise rates by 75 basis points – those are certainly going to be on the table, but could it be something beyond that? It’s possible too.”
Currently inflation is running at more that three times the Fed’s inflation goal, and unemployment, at 3.7%, is below the 4% that most policymakers believe is consistent with a fully employed workforce in the long run.
