Minneapolis Fed's Kashkari says he's 'open-minded' about a 1 percentage point rate hike this month

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Thursday that he's "open-minded" about a full percentage point hike in the nation's key interest rate, taking a more aggressive stance a day after dismal new inflation figures emerged.

Kashkari said in an interview that he will consider other data, such as housing and retail sales, due ahead of the Fed rate-setting committee's July 26-27 meeting before settling on a recommendation.

"I don't have a lean at this point," Kashkari said. "I'm open-minded. I was not considering a 1.0 [percentage point increase] a week ago. But the inflation data was concerning enough that it means we have to keep our eyes open and our minds open."

Kashkari does not have a vote on the Fed's rate-setting committee this year, but he participates in its meetings and shares his recommendations.

Last month, he and most other Fed officials forecast a three-quarters percentage point rate increase in July, matching the June increase. Their aim is to cool off demand to help rein in the highest inflation the U.S. has seen in four decades.

But after the Bureau of Labor Statistics reported Wednesday that inflation hit 9.1% last month, investors have begun to think the Fed committee could raise rates by a full percentage point at its meeting at the end of this month. That would be the largest single increase in decades.

So far, other Fed officials have not shown support for such a large move, but also have not ruled it out.

"I continue looking for some good news to suggest things are moving in the right direction, and so far they are not," Kashkari said.

He added he was disappointed to see in the most recent inflation report that price increases have not started to moderate.

"It surprised us," he said. "It was higher than we expected and broader across categories."

The Russian war in Ukraine has led to higher food and gas prices. But the report indicated that inflation is showing up in everything from rent to general services to airline prices.

"When we see inflation spreading to broader sectors of the economy, that gives us more concern," he said.

Since the latest inflation reading, which was for last month, gas prices have come down a bit and there are some hopeful signs that other commodity prices are softening. But Kashkari said he will not take much comfort in that until it shows up in lower inflation numbers.

The Fed's goal is to get inflation back down to about 2%. Kashkari said he and his colleagues are committed to doing so, but it may take a couple of years to get there.

"The public and American people should see meaningful progress over the course of this year," he said.

One of the first places where the impact of the Fed's rate hikes should show up is in the housing market, he said. Mortgage rates have gone up. And he's hearing anecdotally that is leading to some cooling in residential real estate.

"We hear from mortgage loan officers that say their phones have stopped ringing," Kashkari said. "But obviously home prices are still high and have still been climbing. We want to see more evidence that the housing market is not as frothy as it was."

He said he's been hoping that production and logistics problems, which have led to product shortages and boosted prices, would improve. But so far, he keeps seeing empty spaces on shelves when he goes to grocery stores and drugstores.

"I'm still amazed how many items are missing," he said.

Kashkari joined the Minneapolis Fed in 2016 and, until last year, consistently opposed interest rate increases and was considered one of the most dovish of the Fed's policymakers.