Minneapolis Federal Reserve Bank President Neel Kashkari stated on Tuesday (May 28) that policymakers at the Federal Reserve should wait for “several more months” of data showing a declining trend in inflation before cutting interest rates. He also made it clear that if price pressures intensify, there is a possibility of further rate hikes.
Kashkari made these remarks during an interview with CNBC and while attending a Barclays bank event in London. Known for his dovish stance, Kashkari’s statements carry significant weight given his inclination towards advocating looser monetary policies or lower interest rates.
The speech by the Minneapolis Fed chief indicates that market expectations of a rate cut by the central bank at some point in 2024 might ultimately be dashed by persistently high inflation—especially considering recent economic data showing a resurgence in price pressures. For instance, data released on May 28 by The Conference Board revealed that consumer inflation expectations over the next 12 months in the US have risen to 5.4%, nearly three times higher than the Fed’s 2% target.
Asked about the conditions necessary for one or two rate cuts by the end of this year, Kashkari told CNBC, “I think we need several more months of strong inflation data to give me the confidence that a rate cut is appropriate.”
According to data from CME Group’s FedWatch tool, the market expects the Fed to lower rates by 0.25 percentage points in the policy meeting of the Federal Open Market Committee (FOMC) scheduled for November 7, 2024 (from the current range of 5.25% to 5.5%). It is anticipated that a second rate cut of 25 basis points will occur at the FOMC meeting on January 29, 2025.
However, Kashkari’s speech clearly indicates that if inflation rates continue to rise, the possibility may shift towards a scenario of longer-term higher rates, with all eyes now on the Fed’s preferred inflation gauge — the Personal Consumption Expenditures (PCE) price index. The latest data shows that the inflation rate in March rose from 2.5% in February to 2.7%. The April PCE data will be released this Friday (May 31), with investors expecting the index to reach 2.7% again, indicating sustained price pressures well above the Fed’s target by nearly one percentage point.
During the Barclays event in London, Kashkari mentioned being repeatedly asked when FOMC members might rule out the possibility of future rate hikes.
He said, “I don’t think anybody formally rules those questions out. Even me, I said as long as we need to, we can sit here until we are confident that inflation can persistently come back to 2%.”
Kashkari added that while he believes the most likely scenario is for inflation rates to remain elevated for a longer period, he does not rule out the possibility of further rate hikes.
He said, “I don’t rule out the possibility of future rate hikes, but I think the more likely outcome is to stay the course for a longer period. Of course, if the data surprises us, then we will do what we need to do…the committee will let inflation fall all the way back to 2%.”
He continued, saying, “Our position is non-committal,” referring to the views of FOMC members that they would be willing to hike rates if inflation were to rise again. “The only deviation is our outlook on potential inflation dynamics.”
Kashkari’s speech as the Minneapolis Fed chief is the latest commentary from Fed officials on interest rates and inflation topics. Market expectations for the Fed’s fund rate levels have been fluctuating this year in tandem with the volatility in inflation data.
The Fed might initiate rate cuts this year, causing Wall Street to witness record-breaking surges since the end of 2023, with the Nasdaq and S&P 500 indices hitting historic highs last week.
Mark Hamrick, senior economic analyst at Bankrate, stated in an email to Epoch Times, “Rising rates, like inflation, mean the cost of borrowing will remain elevated.”
An increase in borrowing costs will have a cooling effect on the economy, as indicated by the latest data from The Conference Board, showing a slight deterioration in consumer assessments of current and future financial conditions. Furthermore, in May, consumers’ expectation of an economic downturn over the next 12 months increased, but optimism remains for the stock market, with 48.2% expecting it to rise in the coming year, while 25.4% predict a decline, and 26.4% foresee no change.
High rates have made it difficult for many Americans, especially first-time homebuyers, to afford homeownership. According to a recent study by Redfin, prospective homebuyers now need to earn nearly twice as much as four years ago to afford a typical home.
With inflation rates persistently rising, former President Donald Trump has recently intensified criticisms of what he views as policies under President Joe Biden’s tenure contributing to high prices.
During a keynote speech at the Minnesota Republican Party’s annual Lincoln-Reagan Dinner in St. Paul, the former president lamented “Bidenomics” and joked that he no longer eats bacon because it has become too expensive.
Subsequently, the former president posted on his social media platform Truth Social, claiming that since his incumbent presidency, the price increases under Biden’s administration have caused the typical Minnesota family to spend an additional $1165 per month.
“When I left, we had no inflation,” Trump wrote in a post on Truth Social on the 25th, “Yet, over the past three years, Biden’s inflation tax has caused the average Minnesota family a staggering $28,000 loss, ‘Biden’s price hikes’ continue to extract $1165 per month from a typical Minnesota family’s budget!”
Although Trump did not explain the source of the additional $1165 monthly expense attributed to inflation under the Biden administration, the American Institute for Economic Research’s cost of living calculator shows a similar figure nationwide.
According to the latest inflation data from the government’s Consumer Price Index (CPI) report, prices have risen by 19.9% since President Biden took office. Some categories have seen even higher rates of inflation. For example, rent prices have increased by 20.8%, groceries by 21.3%, and car maintenance by 30.2%.