© Reuters. FILE PHOTO: Neel Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis, speaks during an interview with Reuters in New York City, New York, U.S., May 22, 2023. REUTERS/Mike Segar/File Photo
By Ann Saphir
(Reuters) -Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday that given the surprising resilience of the U.S. economy, the Fed probably needs to raise borrowing rates further and keep them high for some time to bring inflation back down to 2%.
“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” he said at an event at the Wharton School of Business, a recording of which was made available late on Monday.
The Fed last week held its policy rate steady in a range of 5.25%-5.50%, but signaled it is likely not yet done raising rates, with one more interest-rate hike by the end of the year seen as likely appropriate by the majority of Fed policymakers.
“I’m one of those folks,” said Kashkari, who is considered one of the Fed’s more hawkish policymakers.
U.S. central bankers also indicated they are likely to keep rates high longer than earlier thought, with less than half expecting to cut rates to below 5% next year, and one indicating the policy rate ought to end 2024 above 6%.
Kashkari said that if inflation cools next year as expected, the Fed will need to cut rates to keep policy from tightening too much. But he also said he has been surprised by how well consumer spending has held up despite the Fed’s rate hikes so far.
“Everybody on the Federal Open Market Committee is committed” to bringing inflation back down to the Fed’s 2% target, he said. Inflation by the Fed’s preferred measure was 3.3% in July.
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