Federal Reserve’s Kashkari foresees two interest rate hikes in 2022

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Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said he expects the US central bank to need to raise interest rates two times this year, reversing his long-held view that rates will need to stay at zero until at least 2024.

“I brought forward two rate increases into 2022 because inflation has been higher and more persistent than I had expected,” Kashakari said in a post on Medium.

The Fed last month sped up reductions to its bond-buying program and signaled three rate hikes were coming in 2022. Kashkari said Tuesday he supported the faster taper as “a prudent decision that provides flexibility in the future for raising rates sooner if necessary.”

The abrupt shift to embrace rate hikes by one of the Fed’s most dovish policymakers underscores the level of concern at the central bank over the threat of high inflation, now running more than twice the Fed’s 2% goal.

Kashkari’s remarks signaled he may be ready to sacrifice some gains in employment in order to keep inflation in check, a difficult tradeoff that Fed policymakers had hoped to avoid. But he also warned of the need to stay on alert for signs that once-entrenched low-inflation is returning.

“If the macroeconomic forces that kept advanced economies in a low-inflation regime are ultimately going to reassert themselves, the challenge for the FOMC will be to recognize this as soon as possible so we can avoid needlessly slowing the recovery, while at the same time protecting against the risk of entering a new, high-inflation regime,” he wrote.

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