Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, stated on Monday that due to the unprecedented strength of the American economy, it may be necessary to raise interest rates even more and maintain them at high levels for a lengthy period of time in order to bring inflation 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 stated during a meeting at the Wharton School of Business, with a recording of the discussion made public late on Monday.
The Federal Reserve left interest rates unchanged in the range of 5.25%-5.50% last week while stressing that rate hikes may not be over just yet. The vast majority of Fed policymakers believe that it would be reasonable to raise it by the end of the year.
Kashkari, widely regarded as one of the Fed's most vocal officials, admitted, "I'm one of those folks."
Policymakers at the U.S. central bank also suggested that they might maintain elevated rates for a more extended period than previously anticipated. Less than half of them anticipate rates dropping below 5% next year, with one predicting the policy rate could surpass 6% by the end of 2024.
Kashkari stated that the Fed might have to cut rates to keep policy from being too tight if inflation drops as planned next year. That being said, he was also surprised by how well consumer spending has done since the Fed raised rates.
He stated that "everybody on the Federal Open Market Committee is committed" to the goal of reducing inflation back down to the 2% level that the Fed has set. The Federal Reserve's preferred measure for inflation came in at 3.3% in July.
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