Fed's Kashkari Says New Forward Guidance Could Have Been Stronger
September 18 2020 - 9:31AM
Dow Jones News
By Michael S. Derby
New Federal Reserve guidance over the future path of rates fell
short of what was needed, Minneapolis Fed leader Neel Kashkari said
Friday.
"I strongly support" the new guidance, Mr. Kashkari said
explaining his vote. But he also said, "while I believe the
statement is a positive step forward...I would have preferred the
Committee make a stronger commitment to not raising rates until we
were certain to have achieved our dual mandate objectives."
The central banker was one of two regional bank presidents who
voted against the outcome of the rate-setting Federal Open Market
Committee on Wednesday. Then, officials held their short-term rate
target steady and said that they would keep their short-term target
rate very low until the job market had reached its maximum
sustainable level, and inflation had risen to 2% and was on a path
to moderately overshoot that goal.
The FOMC statement said Mr. Kashkari instead preferred that the
Fed would pledge to hold off on raising rates until it had achieved
core inflation levels of 2% for a sustained period.
In his defense of his dissent, Mr. Kashkari said that the Fed
has long struggled to understand the point at which labor markets
are starting to overheat, and a misreading of that level had caused
the central bank to implement tighter monetary policy that was
justified in recent years, as it sought to ward off inflation
threats that didn't exist.
Mr. Kashkari said the problem with the Fed's new guidance is
that it still holds onto the importance of a basically unknowable
variable, that maximum sustainable job level.
When it comes to reading the job market's inflation potential,
"those are difficult judgments to make in real time," he said. "By
eliminating both the direct reference to our assessment of maximum
employment and any forecast of inflation climbing," Mr. Kashkari
said his idea "guards against the risk of underestimating slack in
the labor market," the officials.
Mr. Kashkari said that for him, the amount of sustained 2% core
inflation would likely last roughly a year. He added that if
inflation were to heat up unexpectedly, the Fed could easily deal
with that.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
September 18, 2020 09:16 ET (13:16 GMT)
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