Neel Kashkari, president of the Minneapolis Federal Reserve, said Wednesday he wasn’t sure whether the central bank had raised interest rates enough to curb inflation.
A day after penning an essay suggesting that interest rates may have to go “significantly higher” from here to bring prices down, Kashkari told CNBC that the interest rate is neutral, meaning an interest rate that which neither slows down nor stimulates the economy, could have moved higher.
“I don’t know,” he said on “Squawk Box” when asked whether the current target range for the federal funds rate of 5.25% to 5.5% is “enough restrictive” to bring inflation back to 2% percent target of the Fed. “It is possible that the neutral rate has increased given the momentum or reopening of the economy.”
Some of his concerns stem from the fact that sectors of the economy that are normally affected by interest rate increases appear to be ignoring them.
“One thing that makes me caution that we are not being as hawkish as we think is that consumer spending has remained robust and GDP growth continues to grow above average,” Kashkari said. “The two sectors of the economy that are traditionally most sensitive to interest rate increases, namely the automotive and real estate sectors, have both bottomed out and in some cases are beginning to show some recovery, which makes me cautious that we may not “We will take a restrictive approach.” Otherwise we would think.”
These comments come a week after the Federal Open Market Committee, of which Kashkari is a voting member this year, decided not to raise interest rates but still announced another quarter-point hike before the end of the year while reducing its outlook to two cuts in the year next year, half of the last forecast in June.
Wall Street fears that continued monetary tightening could tip the economy into recession.
But Kashkari emphasized that this is not the Fed’s goal.
“If we have to keep interest rates high for longer, it’s because the economic fundamentals are even stronger than I think [economic] “The flywheel is turning,” he said. “It’s not clear to me that this means a recession is more likely, it might just mean we need a higher interest rate path to get inflation back down to 2%.”
However, he said “we just don’t know right now” whether the Fed has done enough, adding that “we all want to avoid a hard landing” for the economy.