US inflation may finally be moving in the right direction, but the Federal Reserve shouldn’t declare victory just yet, a member of the Fed’s interest rate-setting committee said Tuesday.
“I’m not ready to say that we’re done, but I’m seeing positive signs,” Minneapolis Fed President Neel Kashkari told a conference in the city.
The Fed has raised interest rates 11 times since last year to tame high inflation, which surged above the US central bank‘s long-term target of two percent.
But while inflation has come down sharply in recent months, it remains stuck above the Fed’s target — especially when stripping out volatile food and energy prices.
With inflation heading in the right direction, the Fed could now afford to “take a little bit more time to get some more data in before we decide whether we need to do more,” Kashkari said Tuesday.
Futures traders currently assign a probability of close to 90 percent that the Fed will vote to hold interest rates steady at its next rate-setting meeting next month, according to data from CME Group.
“I want to see convincing evidence that inflation is well on its way back down to two percent, and then it needs some time to run,” Kashkari said in response to a question about when the Fed would begin to cut rates.
He added that the Fed could begin cutting its headline or “nominal” interest rate next year if price increases continue to slow, which would in effect hold the “real,” inflation-adjusted interest rate steady.
“There will come a point in time where one could reasonably argue, ‘hey, maybe we ought to back off the nominal rate just to keep monetary policy at a stable point,'” he said.
“Could that happen sometime next year? It’s certainly possible — or the year after that — but we need to see how the data comes in,” he added.
