NEW YORK, Sept 30 (Reuters) - Federal Reserve Bank of Minneapolis President Neel Kashkari said on Wednesday that he expects the central bank to raise rates again depending on how the economy performs, amid a very necessary effort to bring inflation back to target.
Penciling more interest rate hikes as part of the September Federal Open Market Committee meeting forecasts “is a snapshot in time based on information we had on that Wednesday of the meeting,” Kashkari said at an appearance before the Council on Foreign Relations in New York.
“My basic takeaway on the inflation data is that inflation is still too high” and the latest round of data doesn’t change that story, he said.
Kashkari added that in more than a decade at the Fed, "If you'd asked me in my first five years, would we ever endure five years of elevated inflation? I would have said, not a chance. There's no way that could happen, and yet here we are."
But he added, "I know monetary policy can work" and that it can bring inflation back to target.
On Tuesday, market expectations for the future of interest rate increases downshifted after New York Fed leader John Williams said that while he sees an increase happening before the end of the year, he believes there is no urgency to tighten at the moment after hiking rates at the September 15-16 FOMC meeting.
Then, officials lifted the overnight target rate by a quarter percentage point to between 3.75% and 4% in a bid to help temper inflation pressures that have now overshot the central bank's 2% target for over five years.
Fed officials also believe robust overall growth numbers and labor market stability give them space to focus on their inflation challenge.
At the September meeting where rates were hiked, officials also penciled in one more increase before the end of the year. But financial markets had been expecting a more aggressive path of tightening before Williams' comments on Tuesday.
As the Fed has been hiking rates, bond yields have also been spiking, which could in theory help create restraint on the economy and assist the Fed in its efforts to lower the rise in inflation. Fed officials have tied those gains to optimism over the economic outlook, competition for capital amid strong artificial intelligence investment and uncertainty over the Middle East war that’s roiled energy markets.
"I don't want to blindly dismiss what markets are signaling because markets right now are signaling that policy may have to go even tighter than we expect," Kashkari said. "I want to pay attention to it, but I don't want to blindly follow it either because there are a lot of different factors that can go into some of these market judgments," he said.
Reporting by Michael S. Derby; Editing by Mark Porter and Jamie Freed
