US Market: Fed's Kashkari says US inflation still too high despite rate hike

Minneapolis Federal Reserve President Neel Kashkari said inflation remains too high across the US economy, extending beyond the recent surge in energy prices and underscoring the challenge facing policymakers as they seek to bring inflation back to the central bank's 2% target, Reuters reported.

Kashkari said inflation remains elevated even after excluding volatile food and energy prices, with price pressures still widespread across the services sector and other parts of the economy, according to Reuters.

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The Fed last week unanimously raised its benchmark interest rate by 25 basis points to a range of 3.75%-4.00%. Kashkari supported the increase after being one of three policymakers who dissented at the previous meeting in favor of a rate hike, when the Federal Open Market Committee opted to keep rates unchanged.

The latest rate increase came as policymakers grapple with persistent inflation alongside growing risks from higher energy prices. Crude oil prices have surged following an escalation of hostilities involving the United States and Iran in the Strait of Hormuz, while Saudi Arabia has closed its East-West oil pipeline after aerial attacks, Reuters reported.

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Kashkari said monetary policy cannot directly address disruptions to oil supplies or reopen key shipping routes. However, he stressed that inflationary pressures extend well beyond energy costs, particularly in services, where the Fed's interest-rate tools can influence demand and price growth.

The comments echoed concerns raised by Fed Chair Kevin Warsh after the latest policy meeting. Warsh estimated that the inflation measure used by the Fed to guide its 2% target was running at around 3.6% in August, although the official figure is not due until later this month, Reuters reported.

Warsh also pointed to the breadth of price increases, noting that many categories were still recording inflation above 3% on both six- and 12-month measures.

The persistence of broad-based inflation could keep pressure on the Fed to maintain a restrictive monetary policy even as policymakers monitor the impact of higher oil prices and geopolitical tensions on the US economy.

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