Minneapolis Fed's Kashkari: 'We're pretty close to neutral' on rates
Minneapolis Fed president Neel Kashkari said Thursday he thinks the central bank is “pretty close” to neutral on the level of its benchmark policy rate, implying there may be little room left to cut rates.
“We've cut interest rates a bunch in the last couple of years,” Kashkari said during a fireside chat at the Fargo Moorhead West Fargo Chamber of Commerce. “My guess is we're pretty close to neutral on where our monetary policy is, but ultimately, we need to see, where does inflation go? Does it come all the way back down to 2%? What happens to the unemployment rate? Does it keep going up, or does it level off, or does it come back down?”
Read more: How jobs, inflation, and the Fed are all related
Kashkari said that the yield on the 10-year government Treasury bond tells him that the neutral rate — a level designed to neither boost nor slow economic growth — is probably higher than it was before. He said the build-out of data centers is likely to boost investment and capital flows, boosting interest rates.
“All else being equal, rates are going to be higher because that's how capital has to flow to that sector of the economy,” he said.
When it comes to the job market, Kashkari called it “softer” than it was a year or two ago, but noted that looking out across the country, the job market seems “pretty good.”
Kashkari is the latest official to strike a hawkish tone. Fed Governor Michael Barr said this week that he’d like to see evidence that goods prices are coming down before lowering rates and that he expects to hold rates for “some time.” Chicago Fed president Austan Goolsbee told Yahoo Finance on Friday that he would also like to see further progress on inflation falling to the Federal Reserve's 2% target before supporting another rate cut.
Minutes from the Fed’s policy meeting released Wednesday revealed a divided Fed with an increasing bias toward bringing down inflation. Several Federal Reserve officials anticipate further interest rate cuts if inflation were to drop, but others saw holding rates for "some time," while a “number” saw no rate cuts until there's a clear indication that inflation is "firmly back on track."
A reading of the Consumer Price Index for January, released Feb. 13, showed prices rose 2.4% over the prior year. On a "core" basis, which excludes food and energy, prices rose 2.5% over the prior year.
This Friday, the Commerce Department will release the Fed's preferred inflation gauge — the Personal Consumption Expenditures index — which economists expect to have risen 2.9% in December on a core basis. That would compare with 2.8% in November.
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