Stocks were mixed as focus shifted to inflation data

Minneapolis Fed President Neel Kashkari has become the latest Fed official to call for longer interest rates.

Jennifer Schoenberger of Yahoo Finance reports:

Kashkari said on Tuesday that he still did not rule out raising interest rates, but that the central bank would likely be able to keep interest rates steady for an “extended” period while it waits for inflation to decline.

“We can sit here as long as possible until we are convinced that inflation will fall sustainably to our 2% target,” he said.

While keeping interest rates at their current 23-year highs “for an extended period of time is the most likely outcome,” Kashkari explained that there are other options on the table if inflation does not decline.

He added: “I do not rule out possible increases in interest rates from here.”

Minneapolis Fed President Neel Kashkari participates in the Yahoo Finance All Markets Summit at Union West on Thursday, October 10, 2019 in New York.  (Photo by Evan Agostini/Invision/AP)

Minneapolis Fed President Neel Kashkari participates in the Yahoo Finance All Markets Summit at Union West on Thursday, October 10, 2019 in New York. (Photo by Evan Agostini/Invision/AP) (Evan Agostini/Invision/AP)

The Fed decided on May 1 to keep its benchmark interest rate in a range of 5.25%-5.50% as it attempts to bring inflation down to its 2% target.

Minutes of this meeting released last week indicated that some policymakers discussed their willingness to raise interest rates if necessary.

“Several participants indicated a desire to tighten policy further if inflation risks materialize in a way that makes such action appropriate,” according to the minutes.

Hopes for lower interest rates this year have diminished. Investors have now discounted the odds of a potential first rate cut in September, with a 50% chance the Fed will not cut rates that month. The probability of a reduction in November is 46%.

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First-quarter inflation readings were hotter than expected, but the April reading released after the Federal Reserve’s latest meeting showed some easing of price pressures.

On Friday, officials will get a new reading on their preferred measure of inflation, the core personal consumption expenditures index, which excludes volatile food and energy prices.

Economists expect the “core” PCE index for April to register a 2.8% annual increase, flat from March’s increase. Over the previous month, economists expect “core” personal consumption expenditures to rise by 0.2%, down from 0.3% in the previous month.

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