2023-09-27 08:11:00
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Investing.com – A “soft landing” for the U.S. economy is likely, but there is also a 40% chance the Fed will need to raise “meaningfully” to beat inflation, Neel Kashkari, a president in Minneapolis, said on Tuesday.
In an article published Tuesday on the Minneapolis Fed’s website, Kashkari laid out two possible scenarios for the Fed’s future response to inflation. The first, a “soft landing” path, of 60%, would likely see policymakers raise interest rates once more before stabilizing them in order to fully cool inflation. In the other case, which I attribute to a 40% probability, inflation will be more entrenched and require further interest rate increases to be brought under control. That is, interest will be raised in both cases.
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The Fed’s preferred inflation index fell from 7% last summer to 3.3% last July, and US unemployment rose only slightly, to 3.8% in the latest reading.
Kashkari said this is significant progress on inflation and a still-strong labor market, and under the most likely scenario he sees, “tightening monetary policy will prove sufficient to finish the job” and achieve “the soft landing we hope to achieve.”
The Fed last week held interest rates steady in a range of 5.25%-5.50%, but most policymakers indicated they believed another rate hike by the end of the year would likely be appropriate. Kashkari said Monday that he represents that majority.
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“The good news is that we don’t need to make this decision now,” Kashkari said in the article. “We can observe actual progress in reducing inflation over the next several months to determine the next scenario.”
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