Fed’s Kashkari: Sees rates at 1.75-2.0% by the year’s end

Federal Reserve Bank of Minneapolis President Neel Kashkari said on Friday that he sees the Federal Funds target range rising to 1.75-2.0% by the year’s end and that he sees the neutral rate of interest at 2.0%, reported Reuters.

If inflation is enduring, the Fed will need to get modestly above neutral while inflationary dynamics unwind, he continued, adding that the Fed will need to act more aggressively if the economy turns out to be in a high-pressure, high inflation equilibrium.

Kashkari said that over the course of the year as the Fed moves rates to neutral, we will get more information to determine how much further rates need to rise.

Kashkari also said that inflation is way higher than any of us want it to be and, as a result, we have to normalize monetary policy to bring supply and demand back into balance, reported Reuters. Kashkari said that he is in favour of beginning to shrink the Fed’s balance sheet as soon as the next meeting and that we should shrink the balance sheet at a much faster pace this time versus last.

“I would shrink the balance sheet at double the pace versus last time”, he said. Every one of us is committed to the Fed’s inflation goal, Kashkari noted, saying that we will keep inflation expectations anchored.