Neel Kashkari, president of the Minneapolis Federal Reserve (Fed), said that a prolonged period of high interest rates and an inverted yield curve may put more pressure on banks, but that this is necessary if inflation stubbornly persists. high.
There are signs that high inflation “is coming down but, so far, it’s been pretty persistent, which means we’re going to have to stay that way for a long time,” said Kashkari at Northern Michigan University in Marquette.
Pause in the hikes
The Fed has raised its benchmark overnight interest rate by five percentage points in the past 14 months. After his authorities raised the official rate to a range of 5 to 5.25% last week, the president of the entity, Jerome Powell, indicated that, although it is possible that they are about to end the increases, they are not about to cut them out.
Kashkari underscored that point yesterday, saying he is concerned about the impact of that policy on banks that are under particular pressure after the pair of bankruptcies in March and another collapse this month.
“The real question is: when is inflation going to come down? If it’s going to stay high and entrenched in our economy and we have to have tight monetary policy and an inverted yield curve for a long period of time, that creates real problems for banks of all sizes. We are very aware of this, ”he indicated.
If inflation falls quickly enough, as financial markets now expect, he said, “one could imagine that interest rates will normalize, the yield curve will disinvest, and then the pressure on banks and their deposit bases will be a lot.” minor”.
However, he was not very convinced, acknowledging that inflation has surprised policymakers by its persistence and that the data pushes him towards the “hard” side of the Fed’s policy spectrum.
With inflation high, Kashkari said in response to a question, “now is not the time” to rethink the Fed’s 2% inflation target. That target “is permanent for the foreseeable future,” at least until the Fed inflation can be brought down to that target.
