Fed’s Kashkari says June rate pause wouldn’t show end to hiking cycle

Minneapolis Fed President Neel Kashkari on Tuesday reiterated the central bank’s commitment to bringing inflation under control through monetary policy tightening, and said his biggest fear is that the persistence of price pressures is underestimated.

Anjali Sundaram | CNBC

Minneapolis Federal Reserve President Neel Kashkari on Monday said he’s open to holding off on another interest rate hike next month, but cautioned against reading too much into a pause.

“Right now it’s a close call either way, versus raising another time in June or skipping,” the central bank official said on CNBC’s “Squawk Box.” “Some of my colleagues have talked about skipping. Important to me is not signaling that we’re done. If we did, if we were to skip in June, that does not mean we’re done with our tightening cycle. It means to me we’re getting more information.”

Markets currently are putting about an 83% probability that the rate-setting Federal Open Market Committee holds off on what would be an 11th consecutive increase when it convenes June 13-14, according to the CME Group’s FedWatch tracker of futures prices.

Beyond that, traders see the Fed likely cutting about half a percentage point off rates before the end of the year, a nod toward inflation moving lower and the economy slowing.

Central bank officials have been unified in saying they don’t expect cuts this year. Kashkari said that if inflation doesn’t come down, he would be in favor of raising rates again.

“Do we then start raising again in July? Potentially, and so that’s the most important thing to me is that we’re not taking it off the table,” he said.

“Markets seem very optimistic that rates are going to fall now. I think that they believe that inflation is going to fall, and then we’re going to be able to respond to that. I hope they’re right,” he added. “But nobody should be confused about our commitment to getting inflation back down to 2%.”

Fed Chair Jerome Powell on Friday suggested that the recent stresses in the banking system could slow down the economy enough that policymakers can afford to be less aggressive.

Kashkari said that’s possible, though he added that so far there have been only scant signs of a more macroeconomic impact from the recent banking problems.

“This is the most uncertain time we’ve had in terms of understanding the underlying inflationary dynamics. So I’m having to let inflation guide me and I think we’re letting inflation guide us. It may be that we have to go north of 6%” on the fed funds rate, he said. “If the banking stresses start to bring inflation down for us, then maybe … we’re getting closer to being done. I just don’t know right now.”

The Fed’s benchmark funds rate is currently set in a target range between 5%-5.25%. In addition to a rate decision, the June meeting will feature an update on the Fed’s forecasts for inflation, GDP and unemployment, as well as the “dot plot” that shows the governors’ future rate expectations.

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