"Fed's Kashkari Expects Another Rate Hike, But Is It Enough to Sustain Consumer Spending?"

The Federal Reserve Bank of Minneapolis provides an update on the progress made in tightening monetary policy to combat inflation. While inflation remains above target, there has been significant progress, and near-term inflation expectations have returned to pre-pandemic levels. The overall stance of monetary policy has tightened, with the 10-year real rate continuing to climb. However, it is uncertain how much further tightening is needed to bring inflation back to target. The author presents two scenarios for the future: a soft landing where policy tightening is enough to bring inflation down, and a high-pressure equilibrium where further rate increases may be necessary. The author assigns a 60% probability to the soft landing scenario and a 40% probability to the high-pressure equilibrium scenario. The actual progress in reducing inflation will determine which scenario prevails.