Fed likely to stay on current policy path
The US Federal Reserve remains on a good path and committed to bring inflation back to 2% target, Minneapolis Fed President Kashkari said on Wednesday, but stressed that it’s still premature to discuss any shift away from the central bank’s current policy tightening.
Although Kashkari backed the possibility of adjusting the size of rate hikes in the near future, this is unlikely to happen, as he argued his statement by the fact that monetary policy operates with a lag and higher borrowing cost would take months before impacting inflation.
The Fed keeps aggressive stance in policy tightening and raised interest rates four times in a row by 0.75%, to bring the rate to the range of 3.75%/4.00%, in fighting the highest inflation in four decades, but keep watching the impact of their action, to reduce potential risks of overshooting their target.
Fed Chair Jerome Powell signaled that future rate hikes may come in smaller increases, considering policy lag, but he highlighted that interest rates must rise above initial estimation of 4.6% (terminal rate is currently seen above 5%) to impact high inflation and start bringing it down, contributing to the facts that there is still very long way towards Fed’s two main targets – the price stability and maximum employment.