Bloomberg News reports that two Federal Reserve officials responded to the softening inflation data. However, they believe that this softer inflation data will not change the path of the US central bank towards higher rates of interest not just in the current year but even in the next.
The Fed President of Minneapolis, Neel Kashkari, who was the most dovish policymaker of the central bank before the pandemic, stated on Wednesday that he sees the benchmark interest rate of the Fed at 3.9% by the end of 2022, and by the end of 2023, he sees it to be at 4.4%.
Kashkari revealed that he had not seen anything that might change it when he was asked about responding to a question as per a report of the Labor Department that was released previously, which implied consumer prices rising 8.5% in comparison to one year earlier. The print, however, was slightly lower than the 9.1% increase in the previous month, marking the highest inflation rate in the last forty years.
Kashkari’s Chicago counterpart, on the other hand, Charles Evans, was found welcoming the news on Wednesday at a different event. But he did accept that inflation continues to remain very high, and he revealed that the Fed would be increasing rates throughout the remainder of the year and into the next year so that their target of 2% inflation is met.
Bloomberg News reports that next year, Kashkari will be a voter in the rate setting of the central bank’s Federal Open Market Committee, but Evans is slated to retire in the first half of the next year.
The inflation figures, which were found to be way less than the forecasters’ anticipation, triggered investors to stay low on their bets that the Federal officials might go ahead with another increase in the rate of three-quarters of percentage points next when they will meet on September 20th, 21st, thereby keeping pace and matching the moves in June and July, when the last two meetings were held.
Kashkari also said it was unrealistic to conclude that there would be a rate cut at the beginning of next year. While talking about Fed’s policy path, he said that inflation will continue to be beyond the target rate of 2%, which is very much what the scenario will be in early 2023.
Kashkari said that it is quite likely that the Fed will be raising rates to a certain extent only to halt and watch until they are convinced that there are chances that inflation is on its downward journey.
On the other hand, Evans said that he anticipates that the central bank’s target range for benchmark rate is going to be 2.25% to 2.5%, which is expected to surge to 3.25% to 3.5% by 2023 end. He also said that the rate might swell to 3.75% to 4% by the end of 2023.
