(Bloomberg) -- Federal Reserve Bank of Minneapolis President Neel Kashkari said interest rates will need to rise higher to combat the wage growth that is helping keep some elements of US inflation elevated.
On inflation “there are some hopeful signs,” Kashkari said Wednesday in a question-and-answer session at the Boston Economic Club. “There’s not yet much evidence, in my judgment, that the rate hikes that we’ve done so far are having much affect on the labor market. We need to bring the labor market into balance so that tells me we need to do more.”
Wages increases in the 5% to 6% range are not in line with the Fed’s 2% inflation goal, and are contributing to price increases in services stripping out food, energy and housing. That includes everything from concerts to accountants.
In two television appearances Tuesday, Kashkari said the Fed will likely need to raise interest rates to around 5.4% in order to bring inflation down to its 2% goal.
Policymakers raised their benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% last week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.
Chair Jerome Powell, speaking in an interview Tuesday, said additional rate hikes will be needed to cool inflation, and that officials may need to do more than previously thought should economic data continue to surprise to the upside.
A stronger-than-expected labor market report published last week showed employers added 517,000 new jobs in January while the unemployment rate fell to 3.4%, the lowest since May 1969. Overall wages grew by 6.1% in December, according to data from the Atlanta Fed.
The Fed’s preferred inflation gauge, the personal consumption expenditures index, rose 5% in December, down from a high of 7% in June but still far from the central bank’s 2% target.
Earlier Wednesday, Federal Reserve Bank of New York President John Williams said forecasts officials submitted in December are still a good guide for where interest rates are headed this year and that policy may need to stay at restrictive levels for a few years to get inflation down.
Speaking separately, Fed Governor Lisa Cook said officials were committed to curbing inflation and further tightening was warranted, though she favored maintaining a gradual approach.
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