MNI BRIEF: Kashkari Penciled In One More Rate Hike This Year

Minneapolis Federal Reserve President Neel Kashkari said Monday his "dot plot" is for one more interest-rate hike this year, and suggested 2024 could see either high-for-long rates or a cut.

“We’re going to take our time, see what happens to inflation before determining how high we need to go,” Kashkari said during at talk hosted by the University of Pennsylvania’s Wharton School, and audio of the talk was delayed by technical problems.

The economy's outperformance led by consumers led to a major boost to economic growth in the Fed's latest SEP according to Kashkari, resilience he said could keep inflation elevated for quite a while. It's been a surprise the Fed's hikes didn't “slam the brakes on the economy” and even now unemployment remains relatively low, he said.

“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. (See: MNI INTERVIEW: Fed Defacto Hiked Via SEP, Maybe Too Much-Sahm)

While it's unclear if the neutral interest rate has shifted, officials must also look at how tight the real policy is, he said, suggesting that could lead to a rate cut next year.

“Just as a mathematical sense, if inflation and if core inflation falls quickly over the say next 12 months, if the federal funds rate is held constant that would mean that real rates are tightening," he said. "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 is something obviously we’ll have to look at.”