The July consumer price data released Wednesday is the “first hint” that U.S. inflation might be slowing but doesn’t obviate the need for higher interest rates, said Minneapolis Fed President Neel Kashkari on Wednesday.
“I was certainly happier to see a surprise to the downside,” Kashkari said, during a panel discussion at the Aspen Economic Strategy Group’s annual meeting.
But the Fed is “far, far away from declaring victory,” he added.
“I mean, this is just the first hint that maybe inflation is starting to move in the right direction,” he said.
Kashkari chafed at market expectations that the Fed will cut interest rates early next year, saying that this scenario was “not realistic.”
Traders in the federal funds futures market see the first rate cut coming next June.
“There’s a disconnect between me and the market,” Kashkari said.
“I think much more likely scenario is we will raise rates to some point and then we will sit there until we get convinced that inflation is well on its way back down to 2%,” Kashkari said.