May 23, 2023: On Monday, Minneapolis Federal Reserve President Neel Kashkari said he’s open to holding off on another interest rate hike coming month but cautioned against reading a lot into a pause.

“Currently, it’s a close call either way versus increasing one more time in June or skipping,” the central bank official stated.

“Some of my colleagues have spoken about skipping. Vital to me is not signalling that we’re done. If we did, if we will skip in June, that does not mean we’re okay with our tightening cycle. It means to me we’re getting more information.”

Markets currently are putting regarding an 83% probability that the rate-setting Federal Open Market Committee will hold off on an 11th consecutive increase when it convenes June 13-14, according to the CME Group’s FedWatch tracker of futures prices. Kashkari is a voting people of the FOMC this year.

Beyond that, traders see the Fed likely slashing half a percentage point off rates before, a nod toward inflation moving lower and the economy slowing.

Central bank officials have been unified and stated they don’t expect cuts this year. Kashkari noted that if inflation doesn’t come down, he will favour increasing rates again.

“Do we then start raising again in July? Potentially, and so that’s the most important thing to me is that we’re not taking it off the table,” he said.

“Markets seem very optimistic that rates are going to fall now. I think that they believe that inflation will fall, and then we can respond to that. I hope they’re right,” he further stated. “But nobody should be confused regarding our commitment which gets inflation back down to 2%.”

Fed Chair Jerome Powell suggests that the recent stresses in the banking system could decrease the economy enough that policymakers are affording to be less aggressive.

Kashkari stated that’s possible, though he added that there had been only scant signs of a more macroeconomic impact from the recent banking problems.