Fed’s Kashkari: Tightening may be needed ‘a long time’

The president of the Federal Reserve of Minneapolis, Neel Kashkari, said Thursday that a prolonged period of high interest rates and an inverted yield curve could put more pressure on banks, but would be necessary if inflation remains stubbornly high.

There are signs that high inflation “It’s going down, but it’s been pretty persistent so far, which means we’re going to have to keep it up for a long period of time.“, said kashkari at Northern Michigan University in Marquette, Michigan.

The fed has raised its benchmark overnight interest rate by five percentage points in the past 14 months. After his authorities raised the official rate to the range of 5%-5.25% last week, the president of the entity, Jerome Powell, indicated that, although it is possible that they are about to end the increases, they are not about to cut them out.

kashkari he underscored that point on Thursday, saying he worries about the impact of that policy on banks that have come under particular pressure since a pair of bankruptcies in March and another collapse this month.

“The real question is: when is inflation going to come down? If it’s going to stay high and entrenched in our economy and we have to have tight monetary policy and an inverted yield curve for a long period of time, that creates real problems for banks of all sizes. We are well aware of this”, he indicated.

if the inflation falls fairly quickly, as financial markets now expect, he stated that “one could imagine that interest rates will normalize, that the yield curve will disinvest, and then the pressure on banks and their deposit bases will be much less.”

However, he was not very convinced, pointing out that inflation has surprised the monetary authorities by its persistence, and that the data pushes him to the side “hard” of the political spectrum of the fed.

With inflation too high, he said kashkari In response to a question from the public, “Now it’s not the moment” to reconsider the inflation target of 2% of the fed. That goal, set in 2012, “is permanent for the near future”, at least until the institution manages to reduce inflation to that goal, he said.

Source: Reuters