The Zhitong Finance App learned that Minneapolis Federal Reserve Chairman Kashkari said on Wednesday that the Federal Reserve should now begin gradually raising interest rates to reduce inflation that is still above target and avoid being forced to take more aggressive interest rate hikes in the future due to further consolidation of inflation.
In an interview, Kashkari said that he is inclined to take a gradual tightening path, which can start as early as September, but he has not promised a specific schedule.
At the Federal Open Market Committee (FOMC) meeting held last week, Kashkari was one of three opponents who supported a 25 basis point increase in interest rates. The remaining nine voting officials supported keeping the federal funds rate target range unchanged at 3.5% to 3.75%.
Kashkari said that the profit performance of US companies is strong, and consumer spending and the labor market are still resilient. In this context, he questioned whether the current monetary policy is really restrictive enough.
“Corporate profits are very strong, consumers are still supported, and the labor market remains stable.” Kashkari said, “Looking at these circumstances, I haven't seen much evidence that monetary policy is currently clearly restrictive.”
He pointed out that it is time to start slowly raising interest rates while more data is being released one after another, rather than continuing to wait.
The Federal Reserve has kept interest rates unchanged since this year, and policymakers are trying to find a balance between stabilizing the labor market and inflation still clearly above the 2% target.
The June inflation data improved for a while. With the brief easing of the situation in the Middle East and the fall in oil prices, some price pressures have eased. However, Kashkari said he is still uneasy about the outlook for inflation and believes that a series of supply shocks are continuing to drive up consumer costs.
He said that it is currently uncertain what actions the FOMC will take at the September 15-16 meeting, and future inflation, employment and consumption data will be critical. Current market pricing is slightly biased towards the September rate hike, while expectations for the October rate hike are higher.
Kashkari stressed that he is not advocating a drastic increase in interest rates, but believes that small, gradual action should be taken as soon as possible.
“I'm not calling for a big rate hike.” He said, “I mean, I don't see any evidence that monetary policy is currently even slightly restrictive. We still need to do more to get inflation back to target levels. I'd rather start small steps now than wait until inflation really takes root before being forced to raise interest rates drastically.”
Kashkari's position is in stark contrast to Philadelphia Federal Reserve Chairman Paulson. Paulson also has the right to vote in the FOMC this year, but she said earlier that the current interest rate level already imposes a “moderate limit” on the economy, so she supports staying on hold and waiting for more data.
Paulson also said that voting to keep interest rates unchanged last week “was not a difficult decision” for her.
Notably, last week's three negative votes were the first public disagreement since Kevin Walsh became Chairman of the Federal Reserve. However, Kashkari said that Walsh did not put pressure on him. Kashkari revealed that Walsh once told him, “Do what you think is right for the economy.” Kashkari said he was “very grateful” for this.