Fed’s Kashkari: Entrenched inflation could prompt further rate hikes

Matías Salord FXStreet

Minneapolis Federal Reserve President Neel Kashkari stated during a panel discussion titled "Banking Solvency and Monetary Policy" in Boston that entrenched inflation could prompt the central bank to hike interest rates further.

Kashkari mentioned that higher interest rates could increase the pressure on banks.

Key takeaways from speech:

“If inflation falls as markets currently expect, allowing policy rates to fall, bank balance sheet pressures would likely reduce as longer-term rates fall, causing asset prices to climb.”

“If inflation proves to be more entrenched than expected, policy rates might need to go higher, which could further reduce asset prices, increasing pressure on banks. In such a scenario, policymakers could be forced to choose between aggressively fighting inflation or supporting banking stability.”

“Anchored inflation expectations have been foundational for economic growth over the past four decades. Central banks’ fight to bring inflation back to target and preserve anchored expectations must succeed.”

“Supervisors should consider what actions could be taken now to build resilience among regional banks in case high inflation proves to be more persistent than is currently expected by market participants.”

Market reaction:

The US Dollar is falling sharply on Wednesday following the US Consumer Price Index report that came in below expectations. The DXY is trading below 101.00, down more than 0.50% for the day, at its lowest level since mid-April.

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.