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Neel Kashkari, a Federal Reserve official, stated, "I am one of the Federal Reserve policymakers expecting another rate hike this year." He believes that there is a need to address inflation in the service sector and expresses confidence that the Fed can restore the inflation rate to 2%. Despite the Fed's prediction last week of a policy rate of at least 5.1% by the end of 2024, interest rate futures contracts reflect lower levels, raising doubts about Fed Chair Powell's policy vision.
Kashkari also mentioned that the impact of the balance sheet runoff may not have fully materialized yet, and a government shutdown could lead to insufficient data, necessitating the use of private data.
Furthermore, the US dollar index has risen due to these comments. The Fed's forecasts indicate that most officials expect another rate hike this year, with the policy rate likely to remain at 5.6% in the next three months. However, interest rate futures contracts suggest that the market sees only about a 50% likelihood of further rate hikes in 2023, with the policy rate reaching 4.65% by the end of next year. While there is disagreement among officials regarding the policy trajectory, loose financial conditions stimulating spending or investment could potentially reignite price pressures, making the Fed's inflation control efforts more complex.
The Fed's preferred inflation gauge, the PCE price index, reached a peak of 7% in the summer of 2022 but dropped to 3.3% in July of this year. With non-housing service sector inflation still resilient, Fed officials expect inflation pressures to gradually ease, although financial markets may hold a more optimistic view.
The US dollar index has experienced a new increase due to these comments, currently trading at 106.01, with a minor change during the Asian session on Tuesday.
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