Fed's Kashkari Again Says Raising Rates A Mistake Given Weak Inflation
September 25 2017 - 8:24PM
Dow Jones News
By Michael S. Derby
Federal Reserve Bank of Minneapolis President Neel Kashkari
reiterated Monday that he believes raising rates right now is a bad
idea.
"The Fed should be under no pressure to raise rates. We have
time to let inflation climb back to target," Mr. Kashkari said.
Mr. Kashkari spoke during an appearance at the University of
North Dakota. The official is a voting member of the interest-rate
setting Federal Open Market Committee, which met last week and
maintained its short-term interest rate target at 1% and 1.25%. It
also announced the start of a long-touted program to allow its $4.5
trillion balance sheet to start shrinking.
Mr. Kashkari voted in favor of the Fed's decision last week. But
even as he joined with his colleagues, he has been the most
prominent critic of the Fed's plan to raise interest rates. Mr.
Kashkari has voted against the Fed's two rate rises this year,
believing they are unjustified in light of unexpectedly weak
inflation that's fallen well short of the Fed's 2% price rise
target.
"When I look at the economy, I don't see any signs the economy
is close to overheating," Mr. Kashkari said Monday. "I see no need
to tap the brakes" and attempt to moderate the economy with higher
short-term rates.
Mr. Kashkari said low inflation may be the product of a
weaker-than-it-appears labor market and a weakening in inflation
expectations by the public and markets.
While Mr. Kashkari has offered the only dissenting votes and
served as a prescient voice on inflation matters, he's not entirely
alone as the central bank weighs the prospect of raising rates
again. The central bank's official forecasts once again indicated
an increase is likely this year. The Fed's official forecasts
showed four unnamed officials expecting no more rate increases this
year.
Earlier Monday, Chicago Fed leader Charles Evans, who is also an
FOMC voter, expressed his own anxiety over the outlook. "I think we
need to see clear signs of building wage and price pressures before
taking the next step in removing accommodation," he told an
audience in Grand Rapids, Mich.
Still, there are plenty of Fed officials who think the Fed will
be able to press forward with rate increases and that the forces
that have kept inflation too low are fixed to abate soon.
"We are in a pretty good place" with the economy moving forward
"on a trajectory of slightly above-trend growth, which is gradually
tightening the U.S. labor market," Federal Reserve Bank of New York
President William Dudley said earlier Monday. "I expect inflation
will rise and stabilize around the FOMC's 2% objective over the
medium term," he said, adding "in response, the Federal Reserve
will likely continue to remove monetary policy accommodation
gradually."
In his remarks, Mr. Kashkari said low market-based long-term
rates are largely a function of international investors rating the
U.S. outlook as stronger than other countries. But he added that if
the U.S. doesn't address long-term fiscal challenges, investors
could eventually flee.
Mr. Kashkari also said he believes Chairwoman Janet Yellen has
done a great job leading the Fed, and that as a new leader is
considered for the Fed, "I hope she gets reappointed."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
September 25, 2017 20:09 ET (00:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.