Fed's Kashkari 'open-minded' on raising rates by 25 or 50 bps

Chip Somodevilla

Minneapolis Federal Reserve President Neel Kashkari on Wednesday said he is "open-minded" on raising rates by 25 or 50 basis points at the March Federal Open Market Committee meeting as economic data remains concerning.

"I lean towards continuing to raise rates further," said Kashkari during a Q&A session at the SiouxFalls Business CEO Summit. "What's more important is what we signal in the dot plot."

The federal funds rate currently stands at 4.50%-4.75%. Markets have priced in at least a 25-bp rate hike in March, with the probability of a 50-bp hike in increasing to 30.6% from 0% a month ago, according to the CME FedWatch tool.

Kashkari stressed that the U.S. economy is not in a recession right now, and while the Fed would like to avoid recession, getting inflation down is its top priority. While other Fed officials have expressed optimism on a soft landing, he said he's not sure if that can be accomplished.

One cause for concern is that Fed's rate hikes so far have not slowed the services side of the economy, Kashkari said.

Also, wage growth level is currently too high. "We would need to get wage growth closer to 3% a year to be consistent with our 2% inflation target."

While recent data has been troubling, "we don't want to overreact" to just one month of data, he added.

Responding to a question on cryptocurrencies, Kashkari said "it's been 10 years and no one can articulate any actual usefulness in the real world," adding that he is "deeply skeptical".

Meanwhile, Atlanta Fed President Raphael Bostic said the Fed needs to push rate to 5%-5.25% and hold into 2024.

Comments

[sethmcs]

Is this guy a central banker or politician?

[javkoza]

"open-minded", Now that is a word you do not hear every day describing FED officials!

[Kansas King]

Rates have to keep going up. The US economy is actually doing alright all things considered. However, I don't see inflation slowing down after what I observed in February. Used car prices are going back up. I went to the Toyota dealership just to price out a new Camry and they told me they are going for over $4000 over MSRP and then I proceeded to walk out. Similar story with Hondas. Obviously cars aren't the only product in the world but it's still largely indicative of spending behaviors. Sure, supply issues still abound but there is still excess financial capacity.

I still just get this feeling that people aren't anywhere near slowing down on spending and reducing inflation. It seems that every product where supply chains hit a snag, prices are up instantly 50%. The latest product is olive oil. Prices still just seems so bubbly.

On top of all this housing is still going UP! We thought it couldn't go any higher yet here we are.

I'm not saying we need '80s style rates but it seems based on my observations of today, rates need to continue the climb upward.

[Wallace McKinnon]

@Kansas King The correlation between rates and inflation has been weak at best. This is high school economics run amok.

[anon_cowrd]

Fed needs to reduce balance much more aggressively

[Kansas King]

@anon_cowrd

If you want a crisis, that's how you get a crisis.

[anon_cowrd]

@Kansas King
With high balance sheet, higher fed funds rates are not really effective. All these money market funds are flooding Fed repo and getting free money from Fed. Infact more liquidity is being pumped in to system with these IOR payments by Fed.

[Maverick 2021]

Structure changes to workforce demographics will keep inflation higher for longer……

We are entering a Secular Bear Market, as demographic changes are going against the economic headwinds of Debt, Delinquencies and higher wages…..

There will be more people out of the workforce than ever before as baby boomers continue to retire…..

Preserve Capital

[The Stock Stooge]

There's an interview of Neel a couple months ago where someone in the audience notes that if the national debt were refinanced at these 5-6% rates, interest on the debt would swallow all federal spending, adding a new department of defense to the budget, and require increased federal income taxes to something like 75%. I'm paraphrasing a bit. Neel's response was that the Fed doesn't look at that stuff, and that it's not their job to do so.

That's the level of seriousness the Fed brings to the table these days.

[2021investor]

@The Stock Stooge When you hold the cards, you don't worry. The Fed controls effectively the world's monetary system. They can raise or lower the rates as they wish. This elevated interest expense is only short-term as reflected in short rates. Long-dated treasuries continue to have a reasonably low yield. I don't understand why you are catastrophizing so much.

[JCCIII]

@The Stock Stooge Not sure I understand the criticism of Kashkari in your comment; fiscal policy is the job of the Congress, not the Fed. But, yes, I agree, Congress needs to reduce spending; as Congress is currently on a non-sustainable course, and financial Armageddon awaits if they do not seriously start moving to a more balanced budget. The question is, "Does Congress really care?"

[Kansas King]

@The Stock Stooge

The federal government and Federal Reserve are two separate entities with decision making that is not tied. The Fed's job is to control inflation and employment as directed by congress, not control federal debt levels. It's up to congress to deal with the debt. The simple fact is that we can't have our cake and eat it to.

[pdrozin]

Kashkari is a strange one. They should all be forbidden from market moving comments until the actual release of the minutes. Imagine how much money is being made on their haphazard comments. Amazing to me they are permitted to speak publicly about these issues, during market hours especially.

[dandroidz]

@pdrozin we aint in the club, instead we're supposed to bicker over politics/divisive socio-economic conditions which are a direct function of manipulated wealth/monetary policy

[pdrozin]

@dandroidz Nail on the head!

[2021investor]

@pdrozin If they didn't, you'd accuse them of keeping the market in the dark for months. Same as when a company issues guidance in between earnings releases - you must disclose information to the wider public the minute you have access to it, good or bad.

[dandroidz]

Are they supposed to be in a quiet period for 2 weeks leading to FOMC mtg 3-15? So is today the last day for chatter / market manipulation?