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Fed’s Kashkari: biggest fear is inflation could be more persistent

President of the Federal Reserve Bank on Minneapolis Neel Kashkari listens to a question during an interview in NY, U.S., March 29, 2019. REUTERS/Shannon Stapleton

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Aug 23 (Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday his biggest fear is that the U.S. central bank misreads the extent and persistence of price pressures and can have to deliver a lot more aggressive rate hikes to regulate inflation.

Kashkari has already been probably the most hawkish of all central bank’s 19 policymakers and expects the Fed to have to lift its policy rate, now at 2.25%-2.5%, another two full percentage points by the finish of next year.

“The big fear that I’ve in the rear of my mind is, if we have been wrong and markets are wrong and that inflation is a lot more embedded at a higher level than we appreciate or markets appreciate, then we will need to be more aggressive than I anticipate, probably for longer, to create inflation back off,” Kashkari said.

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At this time, he said, it’s “clear” the Fed must tighten monetary policy.

If inflation were at 4%, he said, the Fed could afford to go slow on rate hikes to ensure it generally does not overdo it and send the economy right into a downturn.

But with inflation as high since it is, he said the Fed needed “to err on making certain we have been getting inflation and only relax whenever we see compelling evidence that inflation is well coming back off to 2%.”

Kashkari says his biggest concern is that when the Fed is “misreading the underlying inflation dynamics, then it does take us some time probably to find that out, and we will need to be a lot more hawkish than I’m envisioning at this time.”

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Reporting by Ann Saphir; Editing by Jacqueline Wong and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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