Fed’s Kashkari: Interest rates likely to stay here for an extended period of time

Minneapolis Fed President Neel Kashkari highlighted at a conference overnight that the current interest rates are likely to be maintained “for an extended period of time” to ensure that inflation steadily returns to the target level.

Kashkari elaborated on circumstances that might prompt a shift in this policy. If inflation metrics “start to tick back down” or if there is a “marked weakening in the labor market,” Fed might consider lowering interest rates. Conversely, he warned that if inflation seems “embedded or entrenched now at 3%,” an increase in rates could be necessary to control inflationary pressures.

Further exploring the complexities of current economic conditions, Kashkari, in an essay, suggested that misjudgments regarding the tightness of existing policies might explain the “constellation of data we are observing.” He questioned whether the disinflationary trend is just slower than expected or if inflation is settling around 3%, indicating that “more work” might be required to meet Fed’s dual mandate objectives.