A senior Fed official said the top of the benchmark interest rate could be raised to more than 4.75 percent if core inflation is not caught.
According to Bloomberg and Reuters on the 18th (local time), Federal Reserve Bank of Minneapolis Governor Neel Kashkari made the remarks in a speech at an event on the level of inflation excluding energy and groceries, which are highly volatile in prices.
He said, “We have publicly said that the benchmark interest rate is likely to rise to the mid-4 percent range early next year,” but added, “If there is no progress in fundamental inflation, there is no reason to stop raising the benchmark interest rate at a level of 4.5% or 4.75 percent.”
Substantial progress is needed in fundamental and service sector inflation, but it has not yet been observed.
“The figures I presented are based on the premise that fundamental inflation will calm down,” he said. “If not, I don’t know how we can stop (interest rate hikes).”
Reuters interpreted that Kashkari’s remarks show that the Fed is ready to raise the benchmark interest rate by 4.5-5.0% early next year, based on the minutes of the Fed’s Federal Open Market Committee meeting and recent remarks by Fed officials.
“Price stabilization measures will clearly benefit in the long run even if there is some pain in the short term,” said Federal Reserve Bank of Atlanta, adding, “If the economy is not put on a stable long-term trajectory, it will be difficult to achieve full employment.”
Earlier, Fed Director Michel Borman said that if there are no signs of price stability, a considerable increase in the benchmark interest rate should be considered, and Chicago Fed Governor Charles Evans sees the benchmark interest rate level at 4.5-4.75% next spring.
The Fed has raised its key interest rate by 0.75 percentage point for three consecutive times until last month to raise the top of the rate to 3.25 percent in order to curb U.S. prices, which have soared to the highest level in 40 years.
However, the recently announced U.S. September consumer price index (CPI) rose 8.2 percent from the same month last year, exceeding the market outlook, and the core CPI in particular rose 6.6 percent, the largest increase since August 1982.
In addition, the market expects the personal consumption expenditure (PCE) price index, which the Fed watches, to rise 5.1% year-on-year in September and higher than 4.9% in August.
As a result, it is widely expected that the Fed will once again raise interest rates by 0.75 percentage points at the FOMC meeting on the 1st and 2nd of next month.
According to the Chicago Mercantile Exchange (CME) FedWatch, participants in the Federal Fund Rate (FFR) futures market see a 94.8% chance that the Fed will raise interest rates by 0.75% points next month.
