The Federal Reserve may need to raise interest rates to at least 5.4% to tame high inflation as January's job gains show policy action so far has been ineffective, Minneapolis Fed President Neel Kashkari said on Tuesday.
"I think it surprised all of us," Kashkari said in the C interview, referring to last Friday's explosive jobs report in which more than half a million job gains were reported for January by the US government. "It seems to indicate that so far, we haven't seen much impact in the labor market, so I don't see anything yet to lower my target rate path."
Kashkari, one of the most aggressive policymakers at the US central bank in his assessment of how high interest rates need to go, had said a month ago that he predicted the policy rate would stop at 5.4%.
Fed Chairman Jerome Powell is expected to speak later, with investors anxious to hear if his assessment of the economy has changed.
Last week the Fed raised its policy rate by a quarter of a percentage point to 4.5%-4.75% but Powell reiterated expectations at the time that the Fed was eyeing a pause in the 5% to 5.25% range in an effort to combat inflation.
The January jobs report on Friday, however, raised investor expectations for an early pause after the economy added more jobs than expected and the unemployment rate fell to 3.4%, the lowest reading since 1969.
Kashkari pointed to other concerns stemming from such a strong labor market, including a very robust service sector and wages still growing at a pace more consistent with the Fed's inflation target, at the time of the Fed's highest rate hike cycle in 40 years.
"It's hard to imagine that you're going to see very strong job growth while wage growth moderates," Kashkari said. "We've seen no progress so far, almost no progress in core services outside of housing, and that's very much tied to the labor market."
On Monday, Atlanta Fed President Raphael Bostic said the central bank may need to raise borrowing costs more than previously expected given unexpectedly strong job gains and noted that while a half-percentage-point rate hike was not the underlying issue, it could be considered.
Kashkari also remains concerned that loose monetary conditions could complicate the Fed's job.
