A key US Federal Reserve official cautioned that further interest rate increases may be necessary if the Middle East conflict leads to significant price shocks and sustained inflation. This warning comes despite a recent decision to hold rates steady, with multiple officials dissenting from the central bank's overall outlook.
Add CNA as a trusted source to help Google better understand and surface our content in search results.cards interface. Give it a try. A key US Federal Reserve official warned Friday that a series of interest rate hikes could be needed if price shocks from the Middle East war are larger than expected, fuelling inflation.
"Federal funds rate increases, potentially a series of them, could be warranted, even at the risk of further weakness to the labour market," Minneapolis Fed President Neel Kashkari said, explaining his dissent to the central bank's overall decision this week. A bigger price shock could cause public expectations of inflation to shift, and the Fed would need to act against it, he believes.after a two-day policy meeting. There are 12 voting members on the bank's rate-setting committee.
Like him, two other regional Fed presidents, Beth Hammack and Lorie Logan, supported the decision to hold rates steady but not the bank's signal that another cut was the next likeliest move. Hammack and Logan cited risks of steeper inflation too in separate statements defending their decisions.
This was the highest number of dissents since October 1992, highlighting the challenges that Fed Chair Jerome Powell'sThe rate-setting Federal Open Market Committee"should offer a policy outlook that signals that the next rate change could be either a cut or a hike, depending on how the economy evolves," Kashkari said on Friday. He flagged risks from an extended closure of the Strait of Hormuz due to the Middle East conflict and the potential for more damage to the region's energy and commodity infrastructure.
Tehran has virtually blocked the waterway, a key route for energy shipments, after US-Israeli strikes since Feb 28. Logan of the Dallas Fed said she is"increasingly concerned about how long it will take" for inflation to return to the Fed's longer-run two per cent target. Price hikes have been above target for years, since the pandemic.
Hammack of the Cleveland Fed said:"I dissented from the post-meeting statement because I did not believe it was appropriate to include an easing bias around the future path for monetary policy.
" "Inflation pressures continue to be broad-based, and rising oil prices present an additional source of inflationary pressure," she said. US President Donald Trump has made no secret of his wish for more interest rate cuts, slamming Powell repeatedly for not slashing them more aggressively. As Trump steps up pressure on the independent institution, Powell announced Wednesday that he would stay on as a Fed governor after his term as chairman expires May 15.
Powell can remain on the Fed's board of governors until 2028, and his decision sparked a wave of fresh criticism from the Trump administration. Get our pick of top stories and thought-provoking articles in your inbox
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