Fed's Kashkari Wants Rate Hikes, But Warns Of Overdoing It

Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday said he has penciled in seven quarter-point interest rate hikes this year to help rein in high inflation, but warned against going too far.

"We need to adjust," Kashkari told the Fargo-Moorhead Chamber of Commerce's Midwest Economic Outlook Summit, because inflation is not proving as temporary as he had thought it would be. "The data just keeps coming in in that direction, and we just have to respond."

The Fed raised rates last week, pivoting from policy that boosted the economy to an inflation-fighting stance, and signaled a rate-hike path that would bring its benchmark overnight interest rate to 1.9% this year and higher next year. As recently as September, Kashkari thought the Fed would not need to raise rates at all this year.

He was, however, cool to the idea that the Fed should raise interest rates faster, as a few of his colleagues in recent days have said they want.

"There's a danger to overdoing it," he said, if pandemic-snarled supply chains get fixed faster than expected, or workers return to the labor force in bigger numbers. "We're going to get information."

In addition, he said, mortgage rates and other borrowing costs have already moved up quite a lot in anticipation of the Fed's rate hikes.

Kashkari said he believes the neutral interest rate level -- where borrowing costs are neither braking nor bolstering growth -- is about 2%, lower than the 2.4% seen by most of his colleagues.