The shutdown of the United States government or a strike by auto workers is seen as possibly slowing down the economy. This could indirectly bring about the possibility that the Federal Reserve will not need to use its tools to reduce price growth, said Minneapolis Fed President Neel Kashkari.
“If these scenarios hit the United States economy, we may need to move back in our monetary policy to bring inflation back to 2% as a government shutdown or auto strike may slow the economy,” he continued.
Kashkari is among the policy makers who voted in this year's monetary policy four scenarios for the Fed's inflation response. One thing he stated was that there was a 60% chance that the United States central bank could reduce inflation to the 2% target without causing serious damage to the economy. On the other hand, price growth will be stronger and require an increase in rates to control price growth.
“If our increase in benefit rates does not slow the economy as we expect, then there is a risk that we may need to increase even higher,” he said.
Fed officials last week kept their reference rate unchanged in the 5.25% to 5.5% range, the highest level in 22 years, and signaled the rate needed to stay higher to keep inflation in check.
The personal spending price index, the Fed's preferred inflation gauge, increased 0.2% in July, posting its smallest monthly increase since late 2020. The core PCE price index, which strips out tapering food and energy components, also rose 0.2% in July over two months. , showing the progress made by the Fed in controlling prices.
Neel Kashkari also stated on Wednesday that the United States Federal Reserve “will not try to cause a meltdown.”
“100% of us want to bring inflation back to 2%, and we want to maintain a strong labor market, and we're all very pleased with the progress we've made and how strong the labor market is,” Kashkari said.
Finally, he predicted that the Fed would maintain rates next year.
