Minneapolis Fed President Neel Kashkari said on Feb. 7 that the central bank will need to keep aggressively raising interest rates, pointing to a stronger-than-expected jobs report in January.
According to the BLS report, the U.S. economy created 517,000 new jobs in January, up from an upwardly revised 260,000 in December and beating economists’ expectations of 185,000.
Meanwhile, the unemployment rate dropped to 3.4 percent, down from 3.5 percent and below the market estimate of 3.6 percent.
“There’s some evidence that it’s having some effect, but it’s pretty muted so far,” Kashkari said of the latest data, adding that he is yet to see anything that will lower his rate path but is keeping his eyes peeled for new data suggesting otherwise.
‘Raising Rates Can Put a Lid on Inflation’
“I wish we saw more evidence that underlying inflation was trending the way we want it,” Kashkari said. “We have seen, obviously headline is down, core is down, but if you strip it all apart, the services side of the economy is still very robust, and wages are still growing at a rate that’s in excess of being consistent with that 2 percent inflation target.”The Minneapolis Fed president said that officials need to bring the labor market into balance and that there is still more work to be done. He added that wage growth needs to be at about 3 percent to be consistent with the central bank’s 2 percent inflation target and 1 percent productivity growth.
While wage growth has dropped slightly, it is still around 4 or 5 percent on a 12-month basis.
“We have a job to do. We know that raising rates can put a lid on inflation. We need to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy. We can always back off so we’re having to let inflation guide policy rather than our models guide policy,” Kashkari said.
Kashkari’s comments come after the Federal Reserve’s policy-making arm, the Federal Open Markets Committee (FOMC), raised interest rates again by a quarter percentage point last week, bringing it to a range of 4.50–4.75 percent.
Recession Debate
Kashkari is a voting member of the FOMC this year.In a separate interview Tuesday on CNN, Kashkari weighed in on the recession debate, stating that he does not see the United States entering an economic downturn this year, again pointing to a strong jobs market.
According to the BLS report, there are nearly two job openings for every available worker, and average hourly earnings for all employees on private nonfarm payrolls are up 4.4 percent over the past 12 months.
Kashkari noted, however, that the chances of inflation “simply falling” back down to the Fed’s 2 percent goal is unlikely without continued interest rate hikes.
Kashkari’s comments reiterated those also made on Tuesday by Fed Chair Jerome Powell, who noted that the latest employment data showed that it will take time to return inflation to the central bank’s 2 percent target, and the road to this aim is “probably going to be bumpy.”
