Minneapolis Fed President Neel Kashkari has urged the Federal Reserve (Fed) to begin gradually raising interest rates as early as the September meeting. He stressed that this early tightening measure is crucial to curb the threat of inflation, thus avoiding the need to implement more aggressive rate hikes in the future.
Kashkari was one of three policymakers who voted against it at last week's FOMC meeting, following the 9-3 majority decision that chose to keep the benchmark rate in the range of 3.5%-3.75%. He believes that the current monetary policy stance is still not tight enough to reduce inflation.
To strengthen his argument, Kashkari pointed to the resilience of corporate earnings performance, sustainable consumer spending rates, and the stability of the U.S. labor market. In addition, there are concerns about a series of external supply shocks and energy price volatility that continue to put pressure on the cost of living of the people.
However, Kashkari's view differs from Philadelphia Fed President Anna Paulson, who believes that the current rate level is adequate and somewhat tight on the economy. Paulson fully supports the decision to keep interest rates on hold to allow the central bank to continue to assess the latest macroeconomic data developments.
Despite the first three dissenting votes under new Chairman Kevin Warsh, Kashkari confirmed that there is no political or internal pressure on him. Markets are now pricing in a stronger rate hike ahead of the October monetary policy meeting.
