Minneapolis Federal Reserve Bank President Neel Kashkari has advised policymakers at the US central bank to wait for several more months of data indicating that inflation is trending downwards before lowering interest rates, whilst not ruling out further rate hikes if price pressures rebuild momentum. These comments from Mr. Kashkari hold significance due to his reputation for advocating for dovish monetary policy settings, or lower interest rates.
Mr. Kashkari’s remarks suggest that market expectations of the central bank lowering interest rates in 2024 might be scuppered by persistently high inflation – particularly given recent economic data showing price pressures on the rise again. For instance, data released by The Conference Board indicates that 12-month inflation expectations among US consumers have risen to 5.4%, almost three times higher than the Fed’s target of 2.
Mr. Kashkari stated during an interview with CNBC and at a Barclay’s event in London on May 28th that “many more months of positive inflation data” would be required for him to feel confident about delivering one or two rate cuts by the end of this year. Markets are currently pricing in a single 0.25 percentage point rate cut this year (down from the current 5.25-5.5%), according to the CME Fed Watch Tool, which measures investor expectations based on futures contracts. A second 25 basis point rate cut is expected by the FOMC’s meeting on January 29th, 2025.
Mr. Kashkari added that while he thinks the most likely scenario is “higher for longer”, he isn’t dismissing the possibility of more hikes. I’m not ruling out potential interest-rate increases from here, but I think sitting where we are for an extended period of time is a more likely outcome,” he said. But of course, if we get surprised by the data, then we would do what we need to do. for the committee to get inflation all the way back down to our 2 percent.
The Minneapolis Fed chief’s comments are the latest from a Fed official on the topic of interest rates and inflation, which have seesawed this year in line with fluctuating inflation data. The possibility that the Fed could start cutting interest rates this year has seen Wall Street experience a record-breaking rally since late 2023, with both the Nasdaq and S&P 500 Index hitting all-time highs last week.
If rates remain elevated for an extended period, it would have a cooling effect on the economy, as illustrated by recent data from The Conference Board which suggests that consumers’ assessment of their current financial situation and outlook over the next six months has slightly deteriorated. Furthermore, the perceived likelihood of a recession over the next 12 months increased among consumers in May, although they remained positive about the stock market with 48.2% expecting stocks to go up in the year ahead, compared to 25.4% who expect a drop and 26.4% expecting no change.
During his keynote speech at the North Carolina Republican Party’s annual convention, former President Donald Trump criticised “Bidenomics” and joked that he no longer eats bacon due to its increased cost under the current administration. Later, on Truth Social, his social media platform, President Trump claimed that price hikes since Biden assumed office are costing the average Minnesota family an additional $1,165 each month compared to the Trump presidency.
While President Trump didn’t explain the source of the $1,165 figure for extra costs due to rising prices under the Biden administration, the American Institute for Economic Research’s cost-of-living calculator shows that this number nationwide is roughly the same. Prices have risen 19.9% since President Biden took office, according to the latest inflation data from the government’s Consumer Price Index (CPI) report. In some categories, the pace of inflation is even higher – for example, rent is up 20.8%, grocery prices are up 21.3%, and car repairs are up 30.2.