Fed's Kashkari: Large enough price shock could require series of rate hikes

Minneapolis Federal Reserve President Neel Kashkari explained on Friday that he dissented at the April policy meeting because the uncertainty around the Strait of Hormuz means the Fed should acknowledge the risk of rate hikes in its statement.

Key takeaways

"A large enough price shock could put inflation expectations at risk, potentially requiring a series of rate increases for the Fed to keep credibility in defending its 2% inflation target."

"The price shock from a prolonged closure of the strait could put inflation expectations at risk, require a strong policy response."

"Even the bening scenario where Strait of Hormuz opens soon would leave inflation so high rates would need to stay on hold for an extended period."

"Prior to war, had seen inflation likely to decline and warrant another rate cut this year; situation had not changed enough in March to modify the policy statement.

Market reaction

The US Dollar struggles to gather strength following these comments. At the time of press, the USD Index was down 0.2% on the day at 97.90.