(Reuters). Neel Kashkari of Minneapolis Federal Reserve Bank suggested on Thursday that, because many households have better finances than before the pandemic began, the Fed might need to increase rates to keep inflation in check.

Kashkari asked the Urban Institute, “Are these better balances leading people to spend less, or to feel more confident? To just change their spending patterns and to make them more sustainable, in which case perhaps the Fed needs to be even more aggressive.”

This could lead to difficult compromises by the Federal Reserve. The Federal Reserve is raising interest rates at an unprecedented rate in recent decades, in order to slow inflation that has been running at 40 year highs.

Fed policymakers believe they will achieve the current target range of short-term interest rate rates at 0.75%-1% in July. There may also be additional, but potentially smaller, rate hikes.

Fed Chair Jerome Powell spoke this week to say that there is a “plausible” chance that rising borrowing costs could slow wages and fuel inflation. But not enough that employers resort to mass layoffs, which might trigger a recession.

Kashkari stated that this is because there are so many factors that the Fed cannot control. Supply chains for example, in which they are currently in a tangled state, are driving up prices in ways that only get worse due to China’s COVID-19 locksdowns and Russia’s invasion of Ukraine.

Kashkari explained that while we know inflation must be controlled, we’re doing our best to make a “soft landing”, but that I am not sure how realistic it is.

The Fed may be helped by an ebb in equity markets, including an 18% decline in since Jan. 3, when the record was set. This will reduce spending and thus demand.

Kashkari explained that “the wealth effect” is real. Stockholders have greater 401Ks and feel more confident. They go out more to spend, but when they fall, their behavior may be affected. Although the Fed doesn’t target stock prices directly, it does pay close attention to this feedback.