(Bloomberg) — Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects the US central bank will need to raise interest rates one more time this year and keep policy tighter for longer if the economy is stronger than expected.
“If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held higher for longer to cool things off,” Kashkari said Monday at an event at the University of Pennsylvania’s Wharton School.
Kashkari, who votes on monetary policy decisions this year, said he was one of 12 policymakers who forecast one more rate hike this year in projections released after the Fed’s two-day policy meeting last week. Officials left their benchmark interest rate unchanged in a range of 5.25% to 5.5%, the highest level in 22 years, and signaled rates will need to stay higher for longer to contain inflation.
Kashkari said Monday he and his colleagues have been surprised by the economy’s resilience so far, but that they remain committed to bringing inflation down to the Fed’s 2% goal.
Chair Jerome Powell emphasized in a press conference after the meeting that officials will make decisions based on incoming data, which in recent months has pointed to signs that the labor market and inflation are cooling.
Speaking in mid-August, Kashkari said that while progress on inflation had been good, it was still too high. He said he wanted to see “convincing evidence” that it was on its way down to the Fed’s target.
Consumer prices increased in August, fueled by higher energy costs. A measure stripping out food and energy also rose, accelerating for the first time in February amid a still-robust economy.
Kashkari also said that policymakers may need to eventually cut rates if inflation comes down quickly next year, which would effectively push real interest rates higher.
“Depending on what is happening in all the economic data that we look at, that then might justify backing off the federal funds rate — not to ease policy but just to stop it from getting tighter from here, and that’s something obviously we’ll have to look at,” Kashkari said.