Fed Neel Kashkari, President of the Minneapolis Federal Reserve, warned during a panel discussion titled. “Banking Solvency and Monetary Policy” in Boston. That persistent inflation might drive the central bank to raise interest rates further.
Fed Kashkari stated that increased interest rates might put more pressure on banks.
Fed Kashkari stated “If inflation falls as markets currently expect. Allowing policy rates to fall. Bank balance sheet pressures would likely reduce as longer-term rates fell, causing asset prices to rise,” said the speaker.
“If inflation proves to be more entrenched than expected, policy rates may need to rise. Further lowering asset prices and increasing pressure on banks.” In such a case, officials may be obliged to choose between actively combating inflation. And preserving financial stability.”
Furthermore Fed Kashkari s stated “Inflation expectations have been anchored.” Over the last four decades, it has been the bedrock of economic progress. The struggle by central banks to restore inflation to goal. While maintaining anchored expectations must be successful.”
“Supervisors should consider what actions could be taken now to build resilience among regional banks. In the event that high inflation proves to be more persistent than market participants currently expect.”
Market reaction
Fed Kashkari statement reaction on DXY. US dollar is sliding substantially on Wednesday as a result of the US Consumer Price Index data. which came in lower than expected. The DXY is currently trading below 101.00, down more than 0.50% on the day, and is at its lowest level since mid-April.
