After voting against it last week, Kashkari calls for interest rate hikes: The Federal Reserve should take action starting in September

According to the Zhitong Finance APP, Minneapolis Federal Reserve President Neel Kashkari stated on Wednesday that the Federal Reserve should begin to gradually raise interest rates to lower inflation, which remains above target, and to avoid being forced to take more aggressive rate hikes in the future due to further entrenchment of inflation.

In an interview, Kashkari expressed his preference for a gradual tightening path, potentially starting as early as September, although he did not commit to a specific timeline.

At last week's Federal Open Market Committee (FOMC) meeting, Kashkari was one of three dissenters supporting a 25 basis point rate hike. The other nine voting officials supported keeping the federal funds rate target range unchanged at 3.5% to 3.75%.

Kashkari noted that U.S. corporate earnings are strong, and consumer spending and the labor market remain resilient. In this context, he questioned whether current monetary policy is truly restrictive enough.

"Corporate earnings are very strong, consumers are still supporting the economy, and the labor market remains stable," Kashkari said. "Considering these factors, I don't see much evidence that monetary policy is currently significantly restrictive."

He pointed out that rates should begin to be slowly raised now as more data is released, rather than continuing to wait.

So far this year, the Federal Reserve has kept interest rates unchanged, as policymakers try to find a balance between a stabilizing labor market and inflation that remains significantly above the 2% target.

Inflation data in June showed some improvement. With a brief easing of tensions in the Middle East and a drop in oil prices, some price pressures have eased. However, Kashkari stated that he still feels uneasy about the inflation outlook and believes a series of supply shocks are continuing to push consumer costs higher.

He indicated that it is currently uncertain what action the FOMC will take at its meeting on September 15-16, and upcoming inflation, employment, and consumption data will be crucial. The current market pricing slightly favors a rate hike in September, with higher expectations for a hike in October.

Kashkari emphasized that he does not advocate for a significant increase in rates, but rather believes that small, gradual actions should be taken as soon as possible.

"I am not calling for a large rate hike," he said. "What I mean is that I don't see evidence that monetary policy is currently even slightly restrictive. We still have more work to do to bring inflation back to target. I would prefer to start taking small steps now rather than waiting until inflation is truly entrenched and then being forced to make a large hike."

Kashkari's stance sharply contrasts with that of Philadelphia Fed President Patrick Harker. Harker, who also has voting rights on the FOMC this year, previously stated that the current level of rates has created a "moderate restriction" on the economy, thus supporting a wait-and-see approach for more data.

Harker also mentioned that voting to keep rates unchanged last week was "not a difficult decision" for her.

Notably, last Wednesday's dissenting votes marked the first public disagreement since Kevin Warsh took over as Federal Reserve Chairman. However, Kashkari stated that Warsh did not pressure him. Kashkari revealed that Warsh had told him, "Do what you think is right for the economy." Kashkari expressed that he is "very grateful" for this