Fed official says US interest rates may have to be kept steady all year
Business
Kashkari notes multiple positive inflation readings required to suggest disinflation is on track
SANTA MONICA (Web Desk) – Stalled US inflation buoyed in part by housing market strength means the Federal Reserve will need to hold borrowing costs steady for an "extended period," and possibly all year, Minneapolis Federal Reserve President Neel Kashkari said on Tuesday, Reuters reported.
"I would need to see multiple positive inflation readings suggesting that the disinflation process is on track" to support a rate cut, Kashkari said at a Milken Institute conference held in Santa Monica, California.
The remarks are another blow to the hopes of seeing US rate cuts, about which the market was very confidents not long ago.
According to Reuters, Kashkari noted that he will also be tracking developments in the labour market, where a "marked" turn to weakness could also justify a rate cut.
The bar for a rate hike is "quite high but it's not infinite," Kashkari said. "There is a limit when we say, 'OK, we need to do more.’ I think it's much more likely we would just sit here for longer than we expect, or the public expects right now, until we see what effect our monetary policies have."
In March, he thought the Fed would need to deliver two rate cuts this year, he said, and by next month when Fed policymakers publish fresh projections he may mark that forecast down to just one cut or even no cuts, depending on the data.
Last month, top US central bank officials including Federal Reserve Chair Jerome Powell backed away from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer and further dashing investors' hopes for meaningful reductions in borrowing costs this year.
Fed policymakers have said since the start of the year that rate cuts are contingent on gaining "greater confidence" that US inflation is moving towards the central bank's 2 per cent goal, but readings over the past few months show price pressures may even be moving in the opposite direction.
On the other hand, it has been reported that options on Secured Overnight Financing Rate (SOFR) futures are showing a higher probability that the Federal Reserve could hike interest rates a quarter percentage point this year and next amid a resilient US inflation and labour market.
Read more: Inflation-wary US rate options market cautiously prices for more Fed hikes
US inflation remains stubborn despite slowing late last year after 15 months of aggressive rate hikes that the Fed halted in July, with the latest data showing that core US personal consumption expenditures inflation rose 3.7pc in the first quarter, after growing 2pc in the fourth.
As far as Pakistan is concerned, Finance Minister Muhammad Aurangzeb on Tuesday said the interest rates would be slashed in the coming months as inflation was a decline consistently – a reference to the consumer price index (CPI) for April dipped to 17.3pc which is lowest since May 2022.
It would boost economy activity in the country by incentivising investment by private sector, he noted, as Pakistan’s economy has been crippled for years amid skyrocketing cost of doing business.
