Fed's Kashkari: Not calling for dramatic increase in rates
In an interview with CNBC on Wednesday, Minneapolis Federal Reserve (Fed) Bank President Neel Kashkari explained that he is not calling for a dramatic increase in interest rates.
Key takeaways
"My goal is not to slow economy, my goal is to bring down inflation."
"Most of inflation recently is from supply shocks, with some demand layered on top."
"Ultimately committee has to decide on right communications posture."
"I think it is good for market to understand reaction function."
"There is value in continuing tradition of explaining reaction function."
"I don't think there is a magic number of meetings."
"I am open minded, don't have a strong opinion."
Kashkari tempers rate hike rhetoric as focus stays on inflation fight
Fed’s Kashkari delivered a more cautious and less forceful message than usual, with the FXS Speechtracker score at 4.6/10 compared to the established baseline of 6.8/10, signaling a softer impact on market expectations. The emphasis that the goal is “not to slow economy” but “to bring down inflation,” alongside the view that recent price pressures are largely supply-driven and the remark of “not calling for dramatic increase in rates,” points to a nuanced stance: committed to the inflation mandate but wary of over-tightening. The open-minded tone on communications strategy and meeting cadence underscores a preference for flexibility rather than pre-commitment, which may limit immediate repricing in Dollar rates but keeps the reaction function in focus for markets.
The FXS Fed Sentiment Index fell by 2.95 points to 142.85, indicating a modest pullback in perceived hawkishness following the speech. Despite the decline, the index remains firmly above the neutral 100 mark, signaling that policy is still viewed as hawkish overall, even as Kashkari’s softer-than-usual tone on dramatic rate hikes tempers the near-term upside for Dollar bulls.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Key takeaways
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