A resilient economy and likely neutral interest rates signaled that the US Federal Reserve could take time, with less risk to the ongoing economic recovery, before deciding to cut interest rates based on a speech by Minneapolis Federal Reserve President Neel Kashkari, who published on Monday.
Inflation is making "rapid progress" toward the Fed's 2% target due to increases in the supply of labor, goods, and services, Kashkari said. Although there may be some signs of economic weakness, nevertheless at a time when there is continuous growth and low unemployment.
"These data lead me to question the extent to which downward pressure on monetary policy is occurring" on the economy, even as high interest rates help maintain inflation expectations, he said. "
Thus, based on the following factors, it indirectly gives policymakers time to assess future economic data before starting to lower the federal funds interest rate, with less risk that too tight a monetary policy will stop the economic recovery," he continued.
At the Fed's policy meeting last week, interest rates were left unchanged at the current range of 5.25% to 5.5%. However, the US central bank said it would be ready to lower the reference rate after gaining more confidence that inflation will continue to slow.
The debate in the coming weeks will center around whether the incoming data helps build more confidence about the path of inflation, and how the kind of risk calculations mentioned by Kashkari.
