ASX set to start higher; Wall Street rises; Fed minutes confirm inflation focus; $A rallies to US68.40¢.
Federal Reserve Bank of Minneapolis President Neel Kashkari said the US central bank has at least another percentage point of interest-rate increases to deliver in 2023 even as inflation, which he compared to Uber surge pricing, shows signs of slowing.
“I have us pausing at 5.4 per cent, but wherever that end point is, we won’t immediately know if it is high enough to bring inflation back down to 2 per cent in a reasonable period of time,” Kashkari said. “Any sign of slow progress that keeps inflation elevated for longer will warrant, in my view, taking the policy rate potentially much higher.”
“When an unexpected rainstorm hits, people don’t want to walk or ride bikes. They call for cars, and the price of a ride can surge from, say, $20 to $90,” Kaskhari said. “The high price accomplishes two goals: First, it reduces demand, and second, it incentivises all available drivers to come out and increase supply. The market then clears at the elevated price.”
Kashkari, who holds a vote on FOMC decisions this year, emerged in 2022 as one of the Fed’s biggest hawks after spending several years before the pandemic as its biggest dove. His 5.4 per cent projection suggests he may be moving a bit closer to the center of the committee, given that two officials in December projected it would be appropriate to raise the federal funds rate even higher this year.
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