(Reuters) – The Federal Reserve may have to push long-term real rates into a contractionary stance in order to help bring inflation down, Minneapolis Fed President Neel Kashkari said on Friday.
“We will need to observe incoming data over the next several months to determine if fulfilling current guidance is enough to bring inflation back down or if we will need to do more,” Kashkari said in an essay posted on Medium, adding that the war in Ukraine and the COVID lockdowns in China will likely delay any normalizing of supply chains.
“If they don’t unwind quickly or if the economy really is in a higher-pressure equilibrium, then we will likely have to push long-term real rates to a contractionary stance to bring supply and demand into balance,” he said.
The central bank raised interest rates by a half percentage point earlier this week, the biggest hike in 22 years, and Fed Chair Jerome Powell signaled policymakers stand ready to approve half-percentage-point rate hikes at upcoming policy meetings in June and July as it steps up its fight to lower high inflation.
(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama)