Fed’s Kashkari: Jobs report shows why more rate hikes needed

Nov 4, 2022, 10:27 AM | Updated: Nov 5, 2022, 7:39 am
FILE - Minneapolis Federal Reserve president Neel Kashkari speaks the Yahoo Finance All Markets Sum...

FILE - Minneapolis Federal Reserve president Neel Kashkari speaks the Yahoo Finance All Markets Summit on Thursday, Oct. 10, 2019, in New York. The solid U.S. jobs report for October underscores why the Federal Reserve needs to keep raising interest rates higher than it had previously forecast to control inflation, Kashkari said Friday, Nov. 4, 2022.(Photo by Evan Agostini/Invision/AP, File)

(Photo by Evan Agostini/Invision/AP, File)

WASHINGTON (AP) — The solid U.S. jobs report for October underscores why the Federal Reserve needs to raise interest rates higher than it had previously forecast in order to control inflation, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Friday.

In an interview with The Associated Press, Kashkari said that at the Fed’s next meeting in December he expects to issue a higher forecast for where the central bank’s benchmark rate will be next year than he did in September. He declined to specify how high a rate he envisions for 2023.

Friday’s jobs data showed that hiring is “quite healthy” despite some slowing in recent months, Kashkari said.

“That tells me we have more work to do to try to cool down the economy and bring demand and supply into balance,” he added.

The Fed has raised its key short-term rate six times this year, the last four times by an unusually large three-quarters of a point, in a strenuous effort to curb inflation. Prices are accelerating at nearly the fastest pace in four decades.

To achieve that goal, the central bank hopes to moderate consumer and business spending, slow hiring and reduce economic growth. Yet the risk is rising that the Fed could go so far as to tip the economy into a recession.

Kashkari has generally supported higher rates. He has taken a hawkish line with inflation this year, after having expressed more dovish sentiments in the past. (“Hawks” typically support higher rates to throttle inflation, while “doves” generally prefer lower rates to bolster hiring.)

On Wednesday, after the Fed’s latest policy meeting, Chair Jerome Powell opened the door to smaller rate hikes in coming months. He added that a step down to a half-point increase could occur at the Fed’s next meeting in December or early next year.

But Powell also cautioned that the Fed would likely elevate its key rate higher than it had projected in September — a sentiment Kashkari echoed Friday.

Each quarter, the Fed issues economic and policy projections. In September, central bank officials forecast that they would raise their short-term rate to about 4.6% by the end of 2023. It is now in a range of 3.75% to 4%, its highest level in 14 years.

“I had interest rates in September peaking at around 4.9% in the March-April (2023) kind of time frame,” Kashkari said in the interview. “Given what I know right now, I would expect to go higher than that. How much higher than that, I don’t know.”

After its meeting Wednesday, the Fed said in a statement that when making decisions on future rate hikes, it would consider the impact of its previous increases and the fact that it can take time for the Fed’s policies to filter into the economy.

Economists took that as an acknowledgement that the Fed’s previous increases haven’t yet had their full impact, and that Fed officials are more open to giving their policies time to work, rather than piling on more hefty rate hikes.

“The Fed is starting to paint itself out of a corner,” said Claudia Sahm, founder of Sahm Consulting and a former Fed economist. The references in the Fed’s Wednesday statement to the lags between its rate hikes and their impact “was a recognition that finally, what they have done should have a notable effect on inflation next year.”

Kashkari said that, in his view, another three-quarter point hike in December is not “off the table.” But he also said the Fed has taken significant steps to wrestle inflation lower and that it is appropriate to consider a slower pace of increases.

“Four (three-quarter point hikes) in a row is a lot of tightening in a short period of time,” he said. “At some point it will be appropriate to step down” to a half point and then, at some time afterward, a quarter point, Kashkari added.

Powell said Wednesday that the Fed would not need to see signs of inflation declining to reduce its rate hikes. But Kashkari said upcoming data on jobs and inflation would impact his decision.

The Minneapolis Fed president noted there are signs inflation may cool next year, such as a sharp slowdown in home sales and smaller rent increases. But he also said he is seeing no evidence that underlying inflation — which is driven more by rising wages and services prices, such as for medical care — are improving.

That’s why Fed officials generally would like to see some weakening in job and wage growth.

“We want people to find jobs,” Kashkari said. “But for me, we also need to see some evidence that the labor market is softening at least a little bit. I’m not seeing much evidence of that.”

Separately, Susan Collins, the new president of the Boston Federal Reserve, said in remarks Friday that October’s robust jobs report may not necessarily signal a solid economy.

Measures of consumer spending and jobs data “may send somewhat different signals as the need by businesses to fill vacant positions may persist even with some slowing of demand,” Collins said, since some industries still have fewer jobs than they did before the pandemic. “The continued above-trend growth in payrolls in this morning’s October employment report is consistent with this view.”

Collins also said, regarding rate hikes, that “smaller increments will often be appropriate” in coming meetings.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Associated Press

Police fatally shoot man who allegedly had gun in St. Paul

ST. PAUL, Minn. (AP) — Police in Minnesota say an officer fatally shot a man who they say displayed a handgun as they were trying to arrest him. The St. Paul Police Department said Tuesday that officers were responding to a domestic assault Monday evening and were told by the caller that the man had […]
8 hours ago
Associated Press

Foundations, major donors tackle nation’s nursing shortage

As more nurses leave their jobs in hospitals and health-care centers, foundations are pouring millions of dollars into efforts to ensure that more stay in the profession and get more out of the job than just the applause and pats on the back they got during the bleakest days of the pandemic. Philanthropic pledges announced […]
8 hours ago
Brendan Fraser poses for a portrait in Los Angeles on Friday, Nov. 18, 2022, to promote his film "T...
Associated Press

Brendan Fraser is back. But to him, ‘I was never far away’

NEW YORK (AP) — In a darkened hotel room in New York’s Soho neighborhood, Brendan Fraser kindly greets a reporter with an open plastic bag in his hand. “Would you like a gummy bear?” Fraser, the 54-year-old actor, is in many ways an extremely familiar face to encounter. Here is the once ubiquitous ’90s presence […]
8 hours ago
FILE - Robinhood CEO Vlad Tenev poses for a picture during an interview on July 28, 2021, in New Yo...
Associated Press

Robinhood takes on retirement in search for more growth

NEW YORK (AP) — Robinhood, the company that blazed onto Wall Street after turning millions of novices into investors by making trading fun, is now setting its sights on a more staid corner of the industry: saving for retirement. The company on Tuesday is initiating signups for a retirement program, where customers can sock savings […]
8 hours ago
FILE - Facebook's Meta logo sign is seen at the company headquarters in Menlo Park, Calif., on, Oct...
Associated Press

Meta oversight board urges changes to VIP moderation system

LONDON (AP) — Facebook parent Meta’s quasi-independent oversight board said Tuesday that an internal system that exempted high-profile users, including former U.S. President Donald Trump, from some or all of its content moderation rules needs a major overhaul. The report by the Oversight Board, which was more than a year in the making, said the […]
8 hours ago
Associated Press

Pope tightens oversight of Vatican-linked foundations

VATICAN CITY (AP) — Pope Francis on Tuesday tightened control and oversight over Vatican-based foundations and associations in his latest effort to impose international standards of accounting and governance on Vatican offices and affiliated entities. A new law aims to bring the Holy See into further compliance with recommendations from the Council of Europe’s Moneyval […]
8 hours ago

Sponsored Articles

Quantum Fiber

How high-speed fiber internet can improve everyday life

Quantum Fiber supplies unlimited data with speeds up to 940 mbps, enough to share 4K videos with coworkers 20 times faster than a cable.
Children’s Cancer Network

Children’s Cancer Network celebrates cancer-fighting superheroes, raises funds during September’s Childhood Cancer Awareness Month

Jace Hyduchak was like most other kids in his kindergarten class: He loved to play basketball, dress up like his favorite superheroes and jump as high as his pint-sized body would take him on his backyard trampoline.

Key dates for Arizona sports fans to look forward to this fall

Fall brings new beginnings in different ways for Arizona’s professional sports teams like the Cardinals and Coyotes.
Fed’s Kashkari: Jobs report shows why more rate hikes needed