Minneapolis Fed President Goes Full Hawk Before Policy Decision: 'If We Don't See Progress In Core Inflation...'

Just two weeks before the U.S. Federal Reserve announces its policy decision, Minneapolis Fed President Neel Kashkari has reportedly voiced his hawkish stance, saying pausing the rate hike campaign won’t make sense if inflation is still rising.

The Federal Reserve can’t suspend its campaign of monetary policy tightening once its benchmark interest rate hits 4.5% to 4.75% if “underlying” inflation is still accelerating, Kashkari said according to a Bloomberg report.

Also Read: Best Forex Brokers

Core Inflation: During a panel discussion hosted by the Women Corporate Directors Minnesota Chapter on Tuesday, he said, “Core services inflation — which is the stickiest of all — keeps climbing, and we keep getting surprised on the upside.”

“If we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping at 4.5, or 4.75, or something like that,” Kashkari argued.

Price Action: Stocks and bonds have equally been hammered by the aggressive rate actions of the Fed and projections of their future policy path. The SPDR S&P 500 ETF Trust SPY has lost over 24% since the beginning of 2022 while the Vanguard Total Bond Market Index Fund ETF BND has shed over 15% in the same period.

According to prices of futures contracts, investors are currently expecting a peak rate of around 4.9% early next year. The Minneapolis Fed chief, known as the Fed’s most outspoken dove before the COVID-19 pandemic, has emerged as the institution’s biggest hawk this year, the report said.

“This inflation didn’t come from the labor market. This inflation came from supply chains and energy and commodities,” Kashkari said.

Read Next: Why The Fed Needs To 'Break The Labor Market' To Avoid A 'Wage-Price Spiral'

Photo courtesy: propublica on Flickr