The tone is hawkish and points to a Fed that may keep rates higher for longer, which tends to support Treasury yields and the US dollar while weighing on rate-sensitive assets. The remark that the neutral rate may be higher than assumed is the detail traders may weigh most, because it suggests current policy could be less restrictive than it looks. A second hike pencilled in for 2027 also pushes out the horizon for any rate cuts. These are one official's views, not a committee decision, so pricing will keep hinging on inflation and jobs data and on what other Fed speakers say.

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Kashkari sees inflation stuck near 3% and an economy that keeps holding up, enough to keep one more hike pencilled in for this year and another for 2027.

Summary:

• Kashkari said inflation is still too high, at around 3%, and that new data had not changed that view.
• He has pencilled in one more rate hike this year and another in 2027.
• He called the economy resilient in the face of shocks, with consumers still spending and those who want to work having jobs.
• He said the longer the economy stays strong, the more he questions how tight policy is, and that the neutral rate may be higher than thought and is likely elevated for now.
• He said policymakers should not blindly follow markets but should not dismiss their message.
• He is sceptical of the idea that the economy is not doing well outside the AI sector.

Fed's Kashkari said on Wednesday that inflation remains too high, running at around 3%, and that new data had not changed that assessment. He said he has pencilled in one more interest rate hike this year and another in 2027, which would mean two further increases spread across this year and next.

Kashkari described the economy as resilient in the face of shocks, saying consumers keep spending and people who want to work have jobs. He also said he is sceptical of the idea that the economy is not doing well outside the artificial intelligence sector.

The more notable comments concerned how tight policy really is. Kashkari said the longer the economy stays strong, the more he is questioning the tightness of monetary policy. The neutral rate is the level of interest rates that neither stimulates nor restrains the economy, and he said it may be higher than previously thought. He said he is not sure where it currently sits, but that it is likely elevated, at least for now. That matters because if the neutral rate is higher, any given policy rate is less restrictive than it would otherwise be, which can strengthen the case for further tightening. In other words, resilient growth and firm hiring may be telling policymakers that rates are not as restrictive as they assumed.

On markets, Kashkari said policymakers should not blindly follow them but also should not dismiss the message they are sending.

The remarks reflect his own views and projections rather than a Fed decision, and other officials may see the balance of risks differently. Attention now turns to upcoming inflation and labour market data, and to further commentary from other policymakers, to gauge whether his argument on the neutral rate gains wider support and how firmly the path of hikes he has sketched is held within the committee. 

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - Central Bank