Aggressive Rate Hikes Still Necessary, Say Fed’s Evans and Kashkari

The Federal Reserve will likely continue to raise interest rates aggressively, even though Wednesday’s inflation data was a positive step, said Chicago Fed President Charles Evans. Minneapolis Fed President Neel Kashkari agreed, saying it was unrealistic to expect easing anytime soon.

Bitcoin (BTC) jumped 2% following news that the inflation rate slowed to 8.5% in July from 9.1% one month earlier. Ether (ETH) surged 7%, as investors placed bets the Fed might ease off its pace of 75-basis-point rate hikes.

Indeed, traders now see a 65% chance of a 50-basis-point rate hike in September, according to the CME FedWatch Tool, rather than another 75-basis-point increase, which was the likelier scenario just a day ago.

“I expect that we will be increasing rates the rest of this year and into next year to make sure inflation gets back to our 2% objective,” Evans said during an event hosted by Drake University in Des Moines, Iowa, on Wednesday. While inflation did slow a bit, the pace remains at an “unacceptable high,” he added.

Charles Evans said he expects the target range for the fed funds rate – currently at 2.25% to 2.5% – to rise to 3.25% to 3.5% by the end of the year, and 3.75% to 4% by the end of 2023.

Colleague Kashkari is more hawkish, expecting the Fed funds rate to rise to nearly 4% by the end of this year and almost 4.5% by the close of 2023. Today’s data and the strong jobs report from last week didn’t change his anticipated rate-hike path, he said at the Aspen Ideas Conference on Wednesday.

As for the U.S. central bank trimming rates in early 2023, Kashkari called that idea “unrealistic” until the Fed is convinced inflation is “well on its way” back down to the 2% target.