Investing.com– The U.S. dollar trimmed recent losses against a basket of currencies on Wednesday, after Minneapolis Federal Reserve Head Neel Kashkari said the central bank would keep tightening policy until it saw clear signs of easing inflation.
Kashkari, who has become one of the Fed’s most hawkish members in recent months, said the bank’s biggest priority at the moment was curtailing inflation, and that it would ease on tightening only if it saw “compelling evidence” that inflation was nearing its 2% target.
The dollar index arrested recent losses after his comments, and rose 0.1% to 108.69. The greenback had slipped 0.4% on Tuesday after dismal service sector data. Dollar index futures rose nearly 0.2%.
Growing expectations of a hawkish Fed saw the greenback come close to a two-decade high this week.
Speaking at the Wharton Minnesota Alumni Club, Kashkari expressed concerns over the possibility that the Fed has misread inflation dynamics, which could spur far more policy tightening than seen so far this year.
“My biggest source of concern is that if we and financial markets are currently misreading the current inflation dynamics, then it’s going to take us a while to figure that out, and we’re going to have to be even more hawkish than I’m envisioning now,” Kashkari said.
He expects the central bank to hike rates by at least 200 basis points (bps) by the end of next year. The Fed’s target rate is currently at 2.25% to 2.50%, with a majority of traders expecting a 75 bps hike in September.
Kashkari’s comments come as several other officials also echoed the sentiment that inflation is still far from under control, and that several more sharp interest rate hikes are warranted to bring it under control.
U.S. CPI inflation stood at an annual rate of 8.5% in July. While the reading did ease slightly from the prior month, it is still around its highest levels in 40 years.
Source: Economy - investing.com
