Federal Reserve Bank of Minneapolis President Neel Kashkari says the U.S. central bank needs to press forward with tighter monetary policy until it is clear that very high levels of inflation are moving back down.
“When inflation is 8% or 9%, we run the risk of un-anchoring inflation expectations,” Kashkari said at an appearance Tuesday, and if that happened, the Fed would likely have to embark on very aggressive rate rises to restore balance.
“We definitely want to avoid allowing that situation to develop,” Kashkari said. “So with inflation this high for me, I’m in the mode of wanting to err on making sure we’re getting inflation down and only relax when we see compelling evidence that inflation is well on its way back down to 2%,” he said.
The July consumer price index was up by 8.5% from the same month a year ago.
Kashkari said his “biggest fear” is that inflation will be more persistent than many now expect. He also said that it remains the case that the bulk of the inflation surge is tied to supply-chain issues.
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