Fed's Kashkari open minded on whether to hike rates by 25 or 50bp at next meeting

Speaking at a Sioux Falls Business CEO event, Neel Kashkari, said he was "open-minded" about whether the target range for the Fed Funds rate should be raised by 25 or 50 basis points when policy makers met on 21-22 March.

According to Kashkari, as recently as December he had been expecting the terminal Fed funds rate reaching 5.4% but had not yet decided what his forecast would be at the March meeting, although he was leaning towards continuing to push his forecasts higher.

"25 or 50 basis points is less important" than where the so-called dot-plot graph of Fed officials' forecasts for rates end up and there were also one more monthly jobs report and one additional consumer price report due out before the next meeting, he said.

The central banker also emphasised that doing too little on rates was a "far greater" risk than over-tightening policy because inflation expectations could become unhinged and carried with it the risk of risks that can last much longer.

At its last meeting, on 31 January-1 February, the Fed hiked rates by 25bp to 4.5-4.75% with Fed funds futures now anticipating a further 75bp of hikes by mid-2023.

On top of that, over the last few session they had moved to price in roughly 50% odds of an additional 25bp hike some time in the third quarter.

Earlier, his peer at the Atlanta Fed, Raphael Bostic, said in an essay published on the regional Fed bank's website that interest rates would need to rise to between 5-0-5.25% and stay there "until well into 2024".

"History teaches that if we ease up on inflation before it is thoroughly subdued, it can flare anew.

“That happened with disastrous results in the 1970s.”