(Bloomberg) - Federal Reserve Bank of Minneapolis President Neel Kashkari, for a long time the US central bank’s biggest dove, is now its biggest hawk.
Kashkari said that he wants to raise the central bank’s benchmark interest rate to 3.9% by the end of this year, and to 4.4% by the end of 2023. That makes him the most hawkish participant on the Fed’s rate-setting Federal Open Market Committee, according to the so-called “dot plot” of interest-rate projections published after the central bank’s June policy meeting.
“In June, in the Summary of Economic Projections, where all of the FOMC participants put in their own projections of interest rates for the next few years, I recommended being at 3.9% by the end of this year, and 4.4% by the end of the following year,” Kashkari said at an Aspen Institute event Wednesday. “I haven’t seen anything that changes that.”
It’s a complete 180-degree turnaround for Kashkari, who prior to the pandemic was the Fed’s most outspoken dovish official. He took the helm at the Minneapolis Fed in 2016, and dissented against all of the FOMC’s rate increases in 2017, the first year in which he voted on the decisions.
Now, he and his colleagues are acting with increasing urgency to quell an inflation outbreak that they didn’t see coming.
The Minneapolis Fed chief -- who votes on policy again next year -- was responding to a question about an earlier Labor Department report on consumer prices, which showed they rose 8.5% from a year earlier in July, slightly less than the 9.1% increase in the prior month that marked the highest inflation rate in four decades.
The figures, which came in below forecasters’ estimates, prompted investors to scale back bets that Fed officials would opt for another rate increase of three quarters of a percentage point when they next meet Sept. 20-21, like they did at each of the last two meetings in June and July.
The Fed is “far away from declaring victory” on inflation, Kashkari said. “This is just the first hint that maybe inflation is starting to move in the right direction, but it doesn’t change my path.”
Alluding to market pricing of the Fed’s policy trajectory, Kashkari said it was not realistic to conclude that the Fed will start cutting rates early next year, when inflation is very likely going to be well in excess of the 2% goal.
“I think a much more likely scenario is we will raise rates to some point and then we will sit there until we get convinced that inflation is well on its way back down to 2% before I would think about easing back on interest rates,” he said.
Asked whether he’d be deterred from returning inflation to the target if that involved triggering a recession, Kashkari said: “It will not deter me from advocating that we do what is needed.”
(Updates to with comment from Kashkari in eighth paragraph.)