Higher Bond Yields Could Limit Fed’s Interest Rate Hikes, says Kashkari
Inflation and Interest Rates
Minneapolis Fed President Neel Kashkari has suggested that the recent increase in yields on longer-term Treasuries may lessen the need for the Federal Reserve to raise interest rates as much as initially anticipated. However, Kashkari also emphasized that it is difficult to determine the exact impact of higher yields on the Fed’s decision-making.
Kashkari stated during a town hall hosted by Minot State University, “It’s certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down.” He added that if the rise in yields is due to changing expectations about the Fed’s actions, then the central bank might need to follow through on those expectations to maintain the elevated yields.
Favorable Outlook for Inflation and Unemployment
When asked about the possibility of achieving a “soft landing” for the economy, with inflation returning to the Fed’s 2% target while avoiding a sharp rise in unemployment, Kashkari expressed optimism. He believes that such a scenario is looking “favorable.”
Kashkari acknowledged that the job market and the overall economy have proven to be more resilient than anticipated in response to the Fed’s previous rate hikes. However, he cautioned that if the economy remains excessively strong, the central bank might need to raise rates further to avoid a potentially harder landing. Despite the positive signs, Kashkari emphasized that it is still too early to declare victory.
Conclusion
In summary, Neel Kashkari believes that the recent increase in yields on longer-term Treasuries could potentially alleviate the need for the Federal Reserve to raise interest rates significantly. While there is uncertainty surrounding the exact impact of higher yields, Kashkari remains cautiously optimistic about achieving a favorable outcome for both inflation and unemployment. However, he cautioned that the Fed must remain vigilant in monitoring the economy to avoid potential risks.
