Fed's Kashkari signals supporting another 75 bp rate hike in July

ANKARA

Minneapolis Fed President Neel Kashkari signaled Friday he could support another 75 basis point of rate hike at the US Federal Reserve's meeting next month.

"While I supported increasing the federal funds rate by 75 basis points at this week's meeting, and could support another such move in July, this uncertainty about how much tightening will be needed leads me to be cautious about too much more front-loading," he wrote in a report titled 'Policy Has Tightened a Lot. Is It Enough?'

"The underlying inflationary dynamics are quite different today than in 1994, so simply repeating the 1994 tightening might not be enough. We have done about half as much real tightening as in 1994, and we might need to do more," he added.

Kashkari said the Fed may continue with 50 basis points of rate hikes, after its meeting in July, until inflation is on its way down to the central bank's 2% target.

He stressed that if the supply side of American economy does not improve, or if inflation expectations become higher, then the Fed would need to continue raising rates.

"Taking a steady approach to driving long real rates higher might help us avoid tightening more than is necessary to restore price stability, while ensuring that we do enough," he explained.

St. Louis Fed President James Bullard, who also voted for a 75-basis-point rate hike on Wednesday, still remained optimistic about a soft landing – a process in which a central bank raises rates against high inflation and causes an economic slowdown but avoids a recession.

Bullard said both the Fed and the European Central Bank (ECB) has "considerable credibility" and added that a soft landing is feasible in American and European economies if the post-pandemic economic environment is well executed.

"The Fed is raising its policy rate sharply and allowing its balance sheet to decline, while the ECB looks set to pursue related actions," he said on Friday during his presentation at Barcelona School of Economics Summer Forum in Spain.

"With inflation near 1970s levels, will the Fed and the ECB be able to disinflate relatively easily and quickly," he added, but also noted, "Many financial market observers and participants are arguing that a substantial recession is likely."

Due to worries of recession, the equity markets in the US and Europe, along with the cryptocurrency market, have been posting massive losses in recent weeks.