Minneapolis Fed President Neel Kashkari said at an event overngiht that the strength of the economy might necessitate higher interest rates for an extended period.

Kashkari commented, “If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off.”

In line with last week’s updated dot plot from Fed, where 12 out of 19 members indicated a potential rate hike this year, Kashkari affirmed his position, stating, “I’m one of those folks.”

However, Kashkari also pointed out a caveat, suggesting the possibility of rate cuts if inflation undergoes a swift decline next year. He elaborated, “Depending on what is happening in all the economic data that we look at, that then might justify backing off the federal funds rate — not to ease policy but just to stop it from getting tighter from here, and that’s something obviously we’ll have to look at.”

Fed Governor Christopher Waller offered a cautious but upbeat assessment of recent US economic indicators in a CNBC interview today. Describing the previous week’s data as “a hell of a good week,” Waller emphasized that positive trends, particularly in inflation, would allow Fed to “proceed carefully” on interest rates.

Waller stated that inflation remains Fed’s primary concern at this time. “The biggest thing is just inflation,” he said, adding that consecutive favorable reports have been encouraging. However, he refrained from being overly optimistic, noting that Fed needs to “see whether this low inflation is a trend or if it was just an outlier or a fluke.”

His cautious tone comes from recent history. “We’ve been burned twice before,” Waller observed. In both 2021 and the end of 2022, initial indications suggested inflation was stabilizing, only to shoot up or be revised away later. As a result, Waller emphasized the need for a more sustained pattern of data before making any conclusive statements. “I want to be very careful about saying we’ve kind of done the job on inflation until we see a couple of months continuing along this trajectory,” he elaborated.

When asked about the possibility of further tightening, Waller insisted that decisions would be data-dependent. He did, however, reassure that one more rate hike wouldn’t necessarily throw the economy into recession. “It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time,” he stated.

Cleveland Fed President Loretta Mester said in a speech that “the increase in virus cases that we’ve seen in recent weeks has raised the downside risks to the outlook and is a stark reminder that there are several different scenarios that could play out”. The reopening phase maybe “more protracted than many had anticipated when it started”.

It’s “clear that more fiscal support is needed to provide a bridge for households, small businesses, and state and local municipalities that have borne the brunt of the economic shutdown until the recovery is sustainably in place”, she added.

On Fed’s side, even though policy rate is “already at its effective lower bound”, there are tools to provide additional accommodations, including “forward guidance about the future path of policy and purchases of longer-term Treasuries and agency mortgage-backed securities”.

Mester’s full speech here.