- Minneapolis Fed President Neel Kashkari said Tuesday that explosive job growth is evidence that the central bank has more work to do when it comes to reining in inflation.
- Kashkari’s indication that the federal funds rate should rise to 5.4% puts him in a more aggressive position compared to his fellow politicians.
- “We need to aggressively raise rates to cap inflation, then let monetary policy work its way into the economy,” he said.
Minneapolis Federal Reserve Bank President Neel Kashkari said Tuesday that the explosive job growth in January is evidence that the central bank has more work to do when it comes to reining in inflation.
That means continuing to raise interest rates, as he sees a chance that the Fed’s benchmark lending rate will rise to 5.4% from its current target range of 4.5-4.75%.
“We have a job to do. We know that raising rates can curb inflation,” he added. kashkari he told CNBC during an interview Tuesday morning on “Squawk Box.” “We need to aggressively raise rates to cap inflation, then let monetary policy work its way into the economy.”
Kashkari was speaking just days after the Labor Department reported nonfarm payrolls rose by 517,000 in January, nearly triple Wall Street expectations and the strongest first-month growth since 1946.
The strong job growth came despite efforts by the Fed to use higher interest rates to correct what officials have called “imbalances” in the labor market between supply and demand. There are nearly two jobs open for every available worker, and average hourly earnings rose 4.4% in January from a year earlier, a pace the Fed views as unsustainable and inconsistent with its 2% inflation target.
The data “tells me that so far we’re not seeing a large footprint of our adjustment to date in the labor market. There’s some evidence that it’s having an effect, but so far it’s pretty muted,” Kashkari said.
“I haven’t seen anything yet to lower my rate trajectory, but I’m obviously keeping my eyes open and we’ll see how the data comes in,” he added.
Kashkari’s indication that the fed funds rate should rise to 5.4% puts him in a more aggressive position compared to his fellow policymakers, who indicated in December that they see the “terminal rate,” or the end point of increases at around 5.1%. The funds rate is what banks charge each other for overnight loans, but it feeds into a multitude of consumer debt instruments, such as car loans, mortgages and credit cards.
Since March 2022, the Fed has raised its benchmark funds rate eight times, after inflation reached its highest rate in more than 40 years. The most recent rise came last week with a quarter percentage point increase that was the smallest since the initial move.
Along with the rate hikes, the central bank has allowed up to $95 billion a month in income from its bond holdings to be wiped off its balance sheet, resulting in an additional adjustment of nearly $450 billion.
Still, inflation levels, while declining, are well above the Fed’s target, and policymakers have indicated more rate hikes are on the way.
“I don’t see that we’ve made enough progress to declare victory,” Kashkari said.
