Senior Official from the Federal Reserve: The neutral interest rate in the United States may be higher than expected, and last week's non-farm data was not weak

On Tuesday, Minneapolis Fed President Kashkari pointed out in his latest article on the Federal Reserve website that recent inflation data in the United States has raised questions about whether monetary policy is restrictive enough to bring inflation back to the Fed's 2% target. "My colleagues and I are certainly pleased to see resilience in the labor market, but with recent inflation plateauing, it raises questions about the extent of policy restrictiveness."

Kashkari noted that continued housing inflation indicators suggest that the neutral interest rate in the United States may actually be higher in the short term, which may mean that the Fed needs to do more to curb inflation. "Given that housing is a key channel through which monetary policy affects the economy, its resilience raises questions about the assessment of the neutral rate by policymakers and the market, at least in the short term." Kashkari raised his forecast for the long-term neutral rate from 2% to 2.5%. The neutral rate refers to the level of interest rates that neither restricts nor stimulates the economy.

In fact, some of Kashkari's colleagues had previously raised their forecasts for the neutral rate. According to the latest economic forecasts released by Fed officials in March, the median forecast for the long-term federal funds rate rose from 2.5% to 2.6%.

Kashkari emphasized that the Fed must formulate policy based on the neutral rate. However, the uncertainty surrounding the neutral rate currently poses a challenge for policymakers.

Kashkari expects that the most likely option for the Fed's FOMC is to maintain policy rates stable over a longer period. If inflation falls again or if the US labor market significantly weakens, these factors could lead to a rate cut by the Fed. However, Kashkari mentioned that last Friday's non-farm payroll report was weaker than expected but not actually weak.

Kashkari believes that a rate hike is not the most likely scenario, but it cannot be ruled out. However, if inflation becomes entrenched, the Fed may continue to raise rates when necessary.

Kashkari stated that multiple positive inflation reports showing progress in combating inflation would help the Fed start cutting rates. He currently expects US inflation to temporarily fluctuate. The rise in new lease contract prices seems somewhat concerning.

Kashkari does not have voting rights at FOMC meetings this year.

Financial blog Zerohedge commented that Kashkari's latest views are dovish and hawkish, but mentioning a rate hike could have a restraining effect on US stocks on Tuesday