“We need to see more evidence to convince us that inflation is on its way back to the 2 percent target,” Kashkari added in an interview on CBS.
The US Federal Reserve decided last week to keep key interest rates unchanged within the range of 5.25-5.50 percent, which is the range they have stabilized since last July, in order to continue pressure on the economy in order to reduce inflation. The bank also published its forecasts, which showed that the average expectation from all 19 Fed officials was to cut interest rates once this year.
“We are in a very good position now to take our time, get more inflation data, get more data about the economy and the labor market before we have to make any decisions,” Kashkari said.
He added: “We are in a strong position, but if we just say that there will be one cut, which is what the latest forecasts indicate, it will likely be at the end of the year.”
Kashkari, who has been more conservative about the possibility of easing monetary policy than many of his colleagues, did not specify how many interest rate cuts he personally expected.
He said he was surprised by the good performance of the US labor market even with the Fed raising borrowing costs significantly in 2022 and 2023, but he expects further slowdown in the future.
“I hope the slowdown will be moderate, and then we can return to a more balanced economy,” he said.
Inflation according to the US Federal Reserve’s preferred measure, the annual personal consumption expenditures price index, was 2.7 percent in April. The Fed targets 2 percent.
The unemployment rate rose in May to 4 percent, its highest level since before the Fed began its rate-hiking campaign in March 2022, but still below what most policymakers see as sustainable.
When asked about the impact of rising borrowing costs on those wishing to buy a home, Kashkari said that the best thing the Fed can do for the housing market is to bring inflation back to target.
“If we simply cut interest rates to try to support homeownership right now, that would probably push up the price of homes, and that wouldn’t really lead to any improvement in affordability,” he said.
He added: “The best we can do is do our job – get inflation back on target – and then hope that the strength of supply in the economy can step in to build the homes that Americans need.”
In other words, Kashkari believes, controlling inflation is the first step to recovering the housing market. Once prices stabilize, real estate companies and developers can increase the supply of homes to meet demand from buyers.
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