The Fed is ‘far, far away from declaring victory’ on inflation, Minneapolis Federal Reserve Bank President Neel Kashkari said at the Aspen Ideas Conference
Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of coming interest rate hikes, but policy-makers left no doubt they will continue to tighten monetary policy until price pressures are fully broken.
Kashkari said he hasn’t “seen anything that changes” the need to raise the Fed’s policy rate to 3.9 per cent by year-end and to 4.4 per cent by the end of 2023.To be sure, Kashkari is the Fed’s most hawkish member; most of his 18 colleagues believe a little less policy tightening may be enough to do the trick to bring prices under better control.
Calling inflation “unacceptably” high, Chicago Fed President Charles Evans said he believes the Fed will likely need to lift its policy rate to 3.25 per cent-3.5 per cent this year and to 3.75 per cent-4 per cent by the end of next year, in line with what Fed Chair Jerome Powell signalled after the Fed’s latest meeting in July.
Equity markets took a similar cue on hopes for a less aggressive central bank, with the S&P 500 rising 2.1 per cent. The consumer price index rose 8.5 per cent in July from a year earlier, Wednesday’s report showed. While that marked a drop from June’s 9.1 per cent rate, prices are still rising at levels not seen since the 1970s and early 1980s. Food prices in July were up 11 per cent from the year before, devastating for lower income families in particular.
Data on August consumer inflation will be released on Sept. 13, the week before the Fed meets, and given recent trends in energy and some other prices the report “should also be friendly to the disinflation path and should make a 50 basis point hike the preferred option.”The core consumer price index - which strips out volatile gas and food prices and is seen as a better predictor of future inflation - rose 0.3 per cent from June and 5.9 per cent from a year earlier.
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