https://sputnikglobe.com/20220617/us-might-need-more-major-interest-rate-hikes-after-june-increase-kashkari-says-1096416213.html
US Might Need More Major Interest Rate Hikes After June Increase, Kashkari Says
US Might Need More Major Interest Rate Hikes After June Increase, Kashkari Says
Sputnik International
WASHINGTON (Sputnik) - The US central bank might need to get more aggressive with interest rates if inflation in the United States does not retreat from... 17.06.2022, Sputnik International
2022-06-17T17:08+0000
2022-06-17T17:08+0000
2022-06-17T17:08+0000
us
interest rates
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“If the supply side of the economy does not improve, or if inflation expectations drift higher, then we might need to continue raising rates beyond what I forecast in my SEP submission,” Kashkari said in a blog post, referring to the Summary of Economic Projections he made in May.On Wednesday, the Federal Reserve announced a 75-basis point increase for the third US rate hike since the outbreak of the coronavirus pandemic two years ago. It was the largest hike in 28 years and brought key lending rates to between 1.5% and 1.75% from the zero to 0.25% range in February.In the SEP submission for May, Kashkari said key US lending rates were only at 1% versus inflation, which was eight times more.Since, the Federal Reserve has moved key US lending rates to just below 2%. The central bank's Chairman Jerome Powell told a news conference after that 75-basis point interest rate hike that the Federal Reserve will not likely have a larger quantum of increase, like 100 basis points. The next Federal Reserve interest rate decision, due in July, might constitute a 50-basis point, or another 75-basis point hike, Powell said.But Kashkari said the Federal Reserve’s actions will ultimately be decided by how inflation evolves.US inflation, as indicated by the Consumer Price Index, grew at an annualized rate of 8.6% in May - more than four times the Federal Reserve’s target. Last month marked the fastest growth in price pressures since 1981, as the cost of virtually everything - from food to fuel, shelter and clothing - spiked.Separately, the University of Michigan said its closely-followed Consumer Sentiment Index sank to a record low in its latest survey for June as Americans became increasingly disillusioned about inflation taking an increasingly bigger bite of their paychecks, particularly after the pump price of gasoline exceeded $5 a gallon last week for the first time ever. Consumer spending accounts for 70% of the US economy.The Federal Reserve’s preferred rate of inflation is 2% per year. It has vowed to raise rates as high and long as necessary to bring price growth back to its annual target.“I supported the 75-bps increase in June, and could support another in July,” Kashkari wrote in his blog. He said he actually preferred a 50-basis point hike for July to prevent a so-called front-loading of rates that would be detrimental to economic growth.Yet, Kashkari highlighted the importance of commensurate action by the Federal Reserve to stop inflation in its tracks, and that included more major rate hikes if necessary.Economists, however, fear that the Fed will push the US economy into a recession with the way it’s going with rate hikes.US gross domestic product, or GDP, expanded by 5.7% in 2021, growing at its fastest pace in four decades after a 3.5% tumble in 2020 caused by the coronavirus pandemic measures.Since the start of this year though, GDP growth has been on a weaker trajectory, posting a negative growth of 1.4% for the first quarter. The slowing GDP growth has heightened fears that the United States may be headed for a recession, especially with the aggressive interest rate hikes planned by the Federal Reserve. Technically, the economy needs two straight quarters of negative growth to be in recession, with the first quarter already being in the red.
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US Might Need More Major Interest Rate Hikes After June Increase, Kashkari Says
WASHINGTON (Sputnik) - The US central bank might need to get more aggressive with interest rates if inflation in the United States does not retreat from four-decade highs, Federal Reserve Bank of Minneapolis President Neil Kashkari said on Friday.
“If the supply side of the economy does not improve, or if inflation expectations drift higher, then we might need to continue raising rates beyond what I forecast in my SEP submission,” Kashkari said in a blog post, referring to the Summary of Economic Projections he made in May.
On Wednesday, the Federal Reserve announced a 75-basis point increase for the third US rate hike since the outbreak of the coronavirus pandemic two years ago. It was the largest hike in 28 years and brought key lending rates to between 1.5% and 1.75% from the zero to 0.25% range in February.
In the SEP submission for May, Kashkari said key US lending rates were only at 1% versus inflation, which was eight times more.
Since, the Federal Reserve has moved key US lending rates to just below 2%. The central bank's Chairman Jerome Powell told a news conference after that 75-basis point interest rate hike that the Federal Reserve will not likely have a larger quantum of increase, like 100 basis points. The next Federal Reserve interest rate decision, due in July, might constitute a 50-basis point, or another 75-basis point hike, Powell said.
But Kashkari said the Federal Reserve’s actions will ultimately be decided by how inflation evolves.
US inflation, as indicated by the Consumer Price Index, grew at an annualized rate of 8.6% in May - more than four times the Federal Reserve’s target. Last month marked the fastest growth in price pressures since 1981, as the cost of virtually everything - from food to fuel, shelter and clothing - spiked.
Separately, the University of Michigan said its closely-followed Consumer Sentiment Index sank to a record low in its latest survey for June as Americans became increasingly disillusioned about inflation taking an increasingly bigger bite of their paychecks, particularly after the pump price of gasoline exceeded $5 a gallon last week for the first time ever. Consumer spending accounts for 70% of the US economy.
The Federal Reserve’s preferred rate of inflation is 2% per year. It has vowed to raise rates as high and long as necessary to bring price growth back to its annual target.
“I supported the 75-bps increase in June, and could support another in July,” Kashkari wrote in his blog. He said he actually preferred a 50-basis point hike for July to prevent a so-called front-loading of rates that would be detrimental to economic growth.
Yet, Kashkari highlighted the importance of commensurate action by the Federal Reserve to stop inflation in its tracks, and that included more major rate hikes if necessary.
“A steady approach to driving long real rates higher might help us avoid tightening more than is necessary to restore price stability, while ensuring that we do enough,” Kashkari added.
Economists, however, fear that the Fed will push the US economy into a recession with the way it’s going with rate hikes.
US gross domestic product, or GDP, expanded by 5.7% in 2021, growing at its fastest pace in four decades after a 3.5% tumble in 2020 caused by the coronavirus pandemic measures.
Since the start of this year though, GDP growth has been on a weaker trajectory, posting a negative growth of 1.4% for the first quarter. The slowing GDP growth has heightened fears that the United States may be headed for a recession, especially with the aggressive interest rate hikes planned by the Federal Reserve. Technically, the economy needs two straight quarters of negative growth to be in recession, with the first quarter already being in the red.
