US Fed official raises doubt about weakening inflation

EUR EUR  USD heading lower towards 1.105

But he said he would want to see more evidence that inflation will rise toward the Fed's 2-percent inflation goal before increasing rates again.

Minneapolis Federal Reserve President Neel Kashkari said on Friday that he was not alone at the USA central bank in his view that the Fed should have waited to raise interest rates until it was sure the recent drop in inflation really is temporary.

"Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate", he argued. Fed officials on Friday signaled that doubts are simmering.

The core price index for personal consumption expenditures, an inflation indicator favored by the Fed, increased 1.5 percent in April after rising 1.6 percent in March, still below the central bank's target of 2 percent, according to the Commerce Department.

The British pound recovered from a three-day selloff, rising 0.5% against the dollar, after data showed United Kingdom inflation spiked in May.

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The Fed's Kaplan on Friday also said he had weighed his decision more carefully after a string of disappointing inflation readings. It also maintained its forecast of one more rate hike this year and three the next.

There is pressure on central banks to "normalise" their interest rates to avert the risk of future inflation catastrophes after years of QE and low rates.

"The outcome that the current FOMC is so focused on avoiding, high inflation of the 1970s, may actually be leading us to repeat some of the same mistakes the FOMC made in the 1970s: a faith-based belief in the Phillips curve and an underappreciation of the role of expectations", he wrote.

"If it leads to a moderate overshoot of 2 percent, that shouldn't be concerning since we say we have a symmetric target and not a ceiling", he said.

"The risk of us being stuck at 1.5 percent inflation they probably feel like is not bad", Kashkari said.

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