Fed Kashkari "No Exclusion of Rate Hike"... Consumer Confidence Index Surprises with Rebound

A U.S. Federal Reserve (Fed) official stated that the option of raising interest rates has not been ruled out. Amid ongoing concerns about a rebound in inflation, the May Consumer Confidence Index, which reflects consumers' perceptions of the U.S. economy, also showed a "surprise rebound."

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Neel Kashkari, President of the Minneapolis Federal Reserve Bank, who is considered to have a hawkish (monetary tightening preference) stance within the Fed, said on the 28th (local time) at the International Monetary Policy Forum held in London, "Nothing should be ruled out regarding the policy path." He added, "Inflation has been sideways recently," and "We need to observe a bit longer to be confident about the inflation outlook."

President Kashkari emphasized, "I have not completely ruled out the possibility of a rate hike," adding, "Although the probability of a rate increase is low, it will not be removed from the table." The recently released May FOMC minutes also confirmed that some participants expressed the opinion that policy tightening should be pursued if necessary.

However, he also added that he expects no rate hikes at least in June and July. President Kashkari does not have voting rights at this year's Federal Open Market Committee (FOMC).

While evaluating the current U.S. interest rate of 5.25?5.5% as restrictive, Kashkari reiterated support for the Fed's stance on prolonged high interest rates, stating, "The rate can remain at the current level as long as necessary until there is confidence that inflation will continuously fall to the 2% price stability target."

Since the beginning of this year, strong economic indicators and concerns about a rebound in inflation have diminished expectations of a rate cut by the Fed. Despite the recently released April Consumer Price Index (CPI) falling short of expectations, the interest rate futures market is more inclined to expect the Fed to maintain rates for the time being. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market currently reflects nearly a 55% probability that the Fed will keep rates steady through the September FOMC.

The U.S. Conference Board Consumer Confidence Index, released on the same day, also rebounded. According to the economic research group Conference Board, the index rose 4.5 points to 102.0 (1985=100 basis) compared to April's 97.5. This far exceeds Wall Street's forecast of 96. It indicates that U.S. consumers view the economy positively and that economic resilience is being confirmed.

The survey also showed a slight increase in the 12-month expected inflation rate to 5.4%. Accordingly, Yahoo Finance noted that responses indicating the possibility of higher interest rates next year also slightly increased.

Market attention is focused on the Personal Consumption Expenditures (PCE) Price Index to be released on the 31st. The key issue is whether the core PCE, the Fed's preferred inflation gauge, will show a slowdown. Wall Street expects the April core PCE growth rate to remain around 2.8%, similar to the previous month. Anna Wong, an economist at Bloomberg Economics, predicted, "It is likely to send an encouraging signal that the disinflation process has not completely stopped."

Prior to this, the Fed's Beige Book economic report will be released on the 29th, and the revised U.S. first-quarter Gross Domestic Product (GDP) figures will be published on the 30th.