Fed's Neel Kashkari says central bank has not made enough progress, keeping his rate outlook

Minneapolis Federal Reserve President Neel Kashkari said Tuesday that explosive jobs growth in January is evidence that the central bank has more work to do when it comes to taming inflation.

That means continuing to hike interest rates, as he sees a likelihood that the Fed's benchmark borrowing rate should rise to 5.4% from its current target range of 4.5%-4.75%.

"We have a job to do. We know that raising rates can put a lid on inflation," Kashkari told CNBC during a Tuesday morning interview on "Squawk Box." "We need to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy."

Kashkari spoke just a few days after the Labor Department reported that nonfarm payrolls grew by 517,000 in January, nearly triple the Wall Street expectation and the strongest growth for the first month of the year since 1946.

The strong jobs growth came despite the Fed's efforts to use higher interest rates to correct what officials have termed "imbalances" in the labor market between supply and demand. There are nearly two open jobs for every available worker, and average hourly earnings rose 4.4% in January from a year ago, a pace the Fed considers unsustainable and inconsistent with its 2% inflation goal.

The data "tells me that so far we're not seeing much of an imprint of our tightening to date on the labor market. There's some evidence that it's having some effect, but it's pretty muted so far," Kashkari said.

"I haven't seen anything yet to lower my rate path, but I'm obviously keeping my eyes open and we'll see how the data comes in," he added.

Kashkari's indication that the fed funds rate needs to rise to 5.4% puts him in a more aggressive slot compared with his fellow policymakers, who indicated in December that they see the "terminal rate," or end point of hikes, around 5.1%. The funds rate is what banks charge each other for overnight lending but feeds into a multitude of consumer debt instruments such as car loans, mortgages and credit cards.

Kashkari is a voting member this year of the rate-setting Federal Open Market Committee.

Since March 2022, the Fed has raised its benchmark funds rate eight times, after inflation hit its highest rate in more than 40 years. The most recent increase came last week with a quarter percentage point hike that was the smallest since the initial move.

Along with the rate rises, the central bank has been allowing up to $95 billion a month in proceeds from its bond holdings to roll off its balance sheet, resulting in an additional nearly $450 billion of tightening.

Still, inflation levels, though easing, are well ahead of the Fed's target, and policymakers have indicated that more rate increases are on the way.

"I'm not seeing that we've made enough progress yet to declare victory," Kashkari said.