Minneapolis Federal Reserve President Neel Kashkari said Sunday that US inflation remains too broad and too high to be explained by energy prices alone, reinforcing the case for the central bank's recent rate tightening.
Speaking on Fox News' "Sunday Morning Futures," Kashkari said, "So even if we strip out energy, which is really volatile, and strip out food — they matter a lot — but in terms of where the economy is going, inflation is still too high."
The comments came one day after the Federal Open Market Committee voted unanimously to raise the benchmark rate by a quarter percentage point, lifting the funds rate to a 3.75%-4.00% range. Kashkari supported the move, though he had been one of three officials who dissented at the prior meeting by favoring a rate increase when the majority opted to hold steady.
Fed Chairman Kevin Warsh estimated August inflation at roughly 3.6% based on the Fed's preferred gauge, well above the 2% target, with official figures due later this month. Warsh warned Wednesday that "too many categories are still posting increases above 3 percent, on both a 6- and 12-month basis."
Kashkari echoed that concern, pointing to the services sector in particular. "The inflation that the American people are feeling every day is much beyond just oil prices. It's in all aspects of the economy. It's in the services sector, for example, widely. So we have tools to bring that back down," he said.
Kashkari also acknowledged limits on the Fed's ability to address one major source of energy price volatility: geopolitical disruption in the Middle East. The US and Iran have engaged in hostilities that include attacking and sinking oil tankers in the Strait of Hormuz, while Saudi Arabia closed its vital East-West pipeline following aerial attacks. Crude prices surged amid the escalation before pulling back slightly — Brent crude closed at $103.19 on September 18, down 1.63 or 1.56%.
"There is nothing the Fed can do with interest rates that will open up the Strait of Hormuz or bring oil prices down," Kashkari said, adding, "Hopefully, we'll get some help from other parts of government or other parts of the real economy."
Warsh reinforced the need for sustained policy restraint ahead of the FOMC's next rate-setting meeting.
