According to President of the Minneapolis Federal Reserve Bank, interest rates could still increase in 2024 before they can begin to drop!

Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated on Tuesday that the policymakers at the U.S. Central Bank should expect several months of inflation drop data before the Fed could consider lowering interest rates in 2024. However, he also doesn’t rule out the possibility of additional rate hikes if prices increase again.

Kashkari, known for his dovish stance – favoring lower interest rates -, emphasized his statement during a CNBC interview and at a Barclays event in London on May 28th. His comments suggest that the market’s expectation for interest rate cuts in 2024 might be overly optimistic, particularly with recent economic data indicating rising inflation. A good proof of that is the Conference Board report, released on May 28th, showing that U.S. consumers expect 12-month inflation to reach 5.4%, significantly higher than the Fed’s 2% target.

Currently, markets anticipate a 0.25% rate cut by the Federal Open Market Committee (FOMC) at their November 7th, 2024 meeting, followed by another 25% cut in January 2025. In contrast, Kashkari’s comments suggest these expectations might be premature if inflation remains high, as the Personal Consumption Expenditures (PCE) price index showed an increase to 2.7% in March from 2.5% in February, and April’s PCE data, expected on May 31th, is anticipated to show a similar 2.7%, still above the Fed’s target.

Further Increase?

At the Barclays event, Kashkari was questioned about when the FOMC might rule out further rate hikes. He responded that no committee member has ruled out the possibility of additional hikes. “Even me, I say that we could sit here for as long as necessary, until we get convinced that inflation is sustainably going back down to our 2 percent target”, he added. His statements align with other Fed officials’ views on inflation and interest rates, reflecting the shifting market expectations as inflation data fluctuates.

“I’m not ruling out potential interest-rate increases from here, but I think sitting where we are for an extended period of time is a more likely outcome. But of course, if we get surprised by the data, then we would do what we need to do for the committee to get inflation all the way back down to our 2 percent.”, said Kashkari.

What To Expect

Higher borrowing costs, resulting from elevated interest rates, are expected to slow down inflation. But, in addition to that, higher interest rates have also made home ownership increasingly difficult for many Americans, especially first-time buyers, as homebuyers now need nearly double the income to afford a typical home compared to four years ago. The latest data from The Conference Board shows that consumers’ views on their financial situations, both now and over the next six months, have worsened. Despite these concerns, 48.2% of consumers remain optimistic about the stock market, expecting it to rise in the next year, while 25.4% foresee a decline, and 26.4 percent expect no change.

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