Minneapolis Fed President Neel Kashkari said in a speech, “while I believe it is too soon to definitively declare that inflation has peaked, we are seeing increasing evidence that it may have .”
“In my view, however, it will be appropriate to continue to raise rates at least at the next few meetings until we are confident inflation has peaked,” he added.
The second step of inflation fighting would be “pausing to let the tightening we have already done work its way through the economy”. He sees interest rate pausing at 5.4%, but “any sign of slow progress that keeps inflation elevated for longer will warrant, in my view, taking the policy rate potentially much higher.”
The third step of inflation fighting is “to consider cutting rates only once we are convinced inflation is well on its way back down to 2 percent”.
But he warned, “Given the experience of the 1970s, the mistake the FOMC must avoid is to cut rates prematurely and then have inflation flare back up again. That would be a costly error, so the move to cut rates should only be taken once we are convinced that we have truly defeated inflation.”
US ISM manufacturing fell to 48.4, corresponds to -0.1% contraction in GDP
US ISM Manufacturing PMI dropped from 49.0 to 48.4 in December, below expectation of 48.6. That’s the lowest level since Mary 2020. Looking at some details, new orders dropped from 47.2 to 45.2. Production dropped from 51.5 to 48.4. Employment rose from 48.4 to 51.4. Prices dropped from 43.0 to 39.4.
ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for December (48.4 percent) corresponds to a 0.1-percent decrease in real gross domestic product (GDP) on an annualized basis”.
Full release here.