Fed's Kashkari says rate hike needs to continue

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Fed's Kashkari says rate hike needs to continue

The Federal Reserve Bank of Minneapolis President Neel Kashkari said in January that the US central bank needs to keep raising interest rates.

Kashkari said in an interview Tuesday that he is still at around 5.4% and referring to his forecast for how high rates need to go to bridle inflation. If I had to pick a number today, I would be where I was in December. The benchmark rate was raised by the FOMC by a quarter point to a range of 4.5% to 4.75% last week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.

Officials projected in December that they would raise rates to 5.1% in 2023 and stay on hold through the year.

Kashkari said no one should overreact to one report. The underlying strength of the services sector of the economy is still very robust and that is where I think a lot of people are focusing their attention. The unemployment rate fell to 3.4%, the lowest since May 1969, and employers added 517,000 new jobs last month.

Kashkari, a voter on the policy-setting Federal Open Market Committee this year, has emerged as one of the more hawkish officials at the central bank as it fights high inflation.

I was surprised by the big jobs number. He said that so far we are not seeing much of an impact of our tightening to date on the labor market. There is some evidence that it is having some effect but it is pretty muted. I haven't seen anything yet to lower my rate path. He said that we need to raise rates aggressively to put a ceiling on inflation and then let monetary policy work its way through the economy. We can always back off, so we have to let inflation guide policy rather than our models guide policy. Atalanta Fed President Raphael Bostic, speaking to Bloomberg News on Monday, said that the strong payroll report could suggest the need for rates to peak at higher levels and policymakers would be studying the data to see if the January numbers were an anomaly.

The investors lifted where they saw rates peak this year and are now in line with that projection after a much stronger than expected January employment report.

Chair Jerome Powell, speaking after the Fed's meeting, said officials expect to deliver a couple more interest-rate increases before putting their aggressive tightening campaign on hold.

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