A U.S. one dollar banknote is seen in this illustration taken November 23, 2021. REUTERS/Murad Sezer/Illustration
(Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari said Wednesday he is “open-minded” on either a 25 basis point or a 50 basis point rate hike at the U.S. central bank’s next meeting, adding that rates may ultimately need to go higher than the 5.4% level he had thought in December would be adequate.
“I think my colleagues agree with me that the risk of undertightening is greater than the risk of overtightening,” Kashkari told a Sioux Falls Business CEO event. Given that inflation in recent data has not receded as expected, he said, he may need to revise upward his own expected path for future Fed rate hikes.
The Fed raised interest rates last year faster than any time in the last 40 years to bring down high inflation. Policymakers reduced that pace at their most recent meeting Jan. 31-Feb. 1. At the time, Fed Chair Jerome Powell noted the beginnings of a disinflationary process, and the central bank lifted the policy rate just a quarter point, to 4.5%-4.75%.
Since then, inflation data has come in stronger than had been expected, with prices by the Fed’s preferred index rising 5.4% in January from a year earlier, faster than in December and far above the Fed’s 2% target.
Meanwhile the labor market has been, in Kashkari’s words, “hot,” with the unemployment rate falling to 3.4% in January, the lowest since 1969.
Fed policymakers will release their next forecasts for the appropriate rate path at the close of their next meeting, later this month. Kashkari said he is leaning towards penciling in a path for rates to an end point higher than the 5.4% he had previously seen.