Thursday, December 1 2022

© Reuters. FILE PHOTO: Minneapolis Federal Reserve Chairman Neel Kashkari poses during an interview with Reuters in his office at the bank’s headquarters in Minneapolis, Minnesota, U.S. January 10, 2020. REUTERS/Ann Saphir

By Anne Sapphire

(Reuters) – The Federal Reserve may need to raise its benchmark rate above 4.75% if underlying inflation continues to rise, Minneapolis Federal Reserve Chairman Neel Kashkari said on Tuesday.

“I’ve said publicly that I can easily see us hitting the mid-4% early next year,” Kashkari said during a panel at the Women Corporate Directors, Minnesota Chapter, in Minneapolis.

“But if we don’t see progress in core inflation or core inflation, I don’t see why I would advocate stopping at 4.5%, or 4.75% or anything like that. We need to see real progress in core inflation and services inflation and we’re not seeing it yet.”

Most Fed policymakers expect to have to raise the key rate, currently at 3%-3.25%, to 4.5%-5% by early next year, based on projections published last month and comments made public since then.

Kashkari’s remarks signal a willingness to go even further.

“This number that I offered is based on a flattening of that underlying inflation,” Kashkari said. “If that doesn’t happen, then I don’t see how we can stop.”

The data so far suggests core inflation is up, not down, despite the Fed’s aggressive rate hikes this year.

Based on recent readings of the consumer price index and other data, economists estimate that the personal consumption expenditure (PCE) price index, which the Fed is watching closely, rose 5 .1% last month from a year earlier, down from 4.9% in August.

The data will be released just days before the Fed’s next policy meeting on November 1-2.

Last month, Fed policymakers forecast core PCE to register 4.5% at year-end and headline inflation of 5.4%. The Fed is targeting headline inflation of 2%.

With inflation high, the central bank is widely expected to deliver a fourth straight 75 basis point rate hike at its next meeting, and policy rate futures traders are also betting on a another significant rate hike in December.

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