Kashkari: 'possible' higher bond yields mean Fed can do less

By Ann Saphir

(Reuters) -It's "possible" that the recent rise in yields on longer-term Treasuries means the Federal Reserve need not raise interest rates as much as otherwise, but it's hard to know definitively, Minneapolis Fed President Neel Kashkari said on Tuesday.

"It's certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down," Kashkari said in a town hall hosted by Minot State University. "But if those higher long-term yields are higher because their expectations about what we're going to do has changed, then we might actually need to follow through in their expectations in order to maintain those yields."

Asked about the chances that inflation falls back to the Fed's 2% goal but the unemployment rate does not rise sharply -- the so-called soft landing for the economy -- Kashkari said it's looking "favorable."

The job market and the economy have been more resilient than he would have thought to the Fed's rate hikes so far, he said.

Still, he cautioned, if the economy stays too strong, the Fed may need to raise rates further to slow it, risking a harder landing. "It's too soon to declare victory," Kashkari added.

(Reporting by Ann Saphir; Editing by Leslie Adler and Jonathan Oatis)

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