Minneapolis Fed President Kashkari’s Letter: Outlook
“40% chance of high interest rates becoming fixed due to neutral interest rate increase”
Minneapolis Federal Reserve President Neel Kashkari, a member of the U.S. Federal Reserve, said he expects the U.S. economy to have a 60% chance of achieving a soft landing, citing one interest rate hike as a prerequisite.
According to Yahoo Finance on the 26th (local time), Governor Kashkari announced in a letter that he expects the Federal Reserve to have a 60% chance of achieving a ‘soft landing’ that prevents an economic recession and lowers inflation.
Governor Kashkari analyzed that a soft landing can be achieved when the Federal Reserve raises interest rates once more and maintains this level for a considerable period of time and inflation gradually falls to the Fed’s target of 2%.
“Given the resilient economic activity we are seeing, it looks more and more like the soft landing we expect,” Kashkari said. “I see it,” he explained.
The possibility that the so-called ‘neutral interest rate’ will increase and high interest rates may become entrenched was also mentioned.
The neutral interest rate refers to a theoretical interest rate that can stabilize prices and unemployment and achieve potential growth without inflation or deflation pressure.
Neutral interest rates cannot be observed; they are inferred from how the economy reacts to certain levels of interest rates. If interest rates do not slow demand or inflation, the neutral rate should be higher.
Governor Kashkari analyzed, “Even if the supply factor is fully restored, it may not be possible to end austerity policies to bring service inflation down to the target,” adding, “In this case, interest rates will have to be raised to a higher and potentially meaningful level.” He added that the probability of such a scenario is 40%.
Jamie Dimon, chairman and CEO of JPMorgan Chase, also warned in an interview with the Times of India on the same day that the Federal Reserve may have to raise the benchmark interest rate to 7%.
Governor Kashkari was known as a ‘dove’ who favored low interest rates and loose monetary policies, but in recent months he has shifted to a hawkish stance, concerned about the dynamics of inflation exceeding the target.
Governor Kashkari is one of the members who suggested in the Federal Reserve’s interest rate decision announced on the 20th that interest rates would be frozen but that there could be an additional 0.25% increase within the year.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.