Fed's Kashkari Gains Company in Concerns Over Raising Rates
September 19 2017 - 1:59PM
Dow Jones News
By Michael S. Derby
Neel Kashkari labored through much of this year as the most
prominent Federal Reserve official opposed to raising short-term
interest rates. Lately, he's gained more company.
Mr. Kashkari, president of the Minneapolis Fed, has argued the
central bank shouldn't be raising borrowing costs when inflation
persists below its 2% target. He cast the only votes against the
Fed's rate increases in March and June.
Fed officials in June penciled in one more rate rise this year,
with most sharing Chairwoman Janet Yellen's view that inflation
would likely pick up amid a tightening labor market. Since then,
however, a string of largely disappointing price readings have
given officials doubts about whether they'll be in a position to
raise rates again later this year. Several now say they want to see
more evidence of strengthening inflation before they'll support
another rate move.
Mr. Kashkari "has proven himself with a fairly prescient view on
the economy that is hard to ignore" given inflation's performance,
said Tim Duy, an economics professor at the University of
Oregon.
Shawn Sebastian, an activist with the left-leaning group Fed Up,
commended Mr. Kashkari for pushing back against higher rates. "He
is the one making an argument that reflects real-world data," he
said.
The Fed is likely to leave rates unchanged at their meeting this
week, and officials' new projections to be released Wednesday will
show how many still expect to lift rates again before year's
end.
A few other Fed officials voiced concerns similar to Mr.
Kashkari's earlier in the year but either voted to raise rates or
don't hold voting seats on the central bank's rate-setting
committee in 2017, due to its annual rotation system. His votes
turned him into the Fed's most public dissident, drawing an unusual
degree of attention for a relatively new central banker.
Mr. Kashkari has been less lonely lately. Leaders of the
Chicago, Dallas and Philadelphia Fed banks have said recently they
want to see higher inflation before approving another rate rise.
Fed governor Lael Brainard said recently " we should be cautious
about tightening policy further until we are confident inflation is
on track to achieve our target."
Unlike most Fed officials, Mr. Kashkari isn't an economist.
Before joining the joined the Minneapolis Fed in early 2016, he was
best known as the man who had overseen the Treasury Department's
$700 billion Troubled Asset Relief Program, a crisis-era bank
rescue effort. He's focused most of his energies during his Fed
tenure on financial regulation issues, primarily proposals to
prevent future bailouts of firms so big their failure would
threaten the financial system.
He has masters' degrees in engineering and business
administration, has worked at Goldman Sachs Group Inc. and Pacific
Investment Management Co. and ran unsuccessfully as a Republican
candidate for California governor.
Mr. Kashkari said in early September his monetary policy views
are guided by the data. "We are coming up short in our inflation
mandate, there still seems to be slack in the labor market, wage
growth is not high -- why are we raising rates?"
This year's inflation puzzle has challenged the Fed economists'
long-held assumptions about how the world works. Ms. Yellen and
others expect falling unemployment to eventually fuel faster gains
in wages and prices. But joblessness fell to a 16-year low of 4.3%
in July while inflation remained soft.
In June, Ms. Yellen attributed tepid inflation to transitory
factors. In July, she said she still expected price pressures to
heat up, but added the Fed could change its policy plans if that
didn't happen.
A pickup in inflation in August provided the first evidence in
many months that Ms. Yellen might prove right. But Fed officials
want to see several more such reports before lifting rates
again.
Mr. Kashkari now wonders whether the Fed's four rate rises since
late 2015 may have helped weaken inflation. He said in a public
appearance Sept. 5. " Maybe our rate hikes are actually doing real
harm to the economy."
He may not prevail in convincing his Fed colleagues to hold
interest rates steady through year's end. After the August
inflation report was released Thursday, traders in futures markets
boosted the probability of a December rate move to just over 50%,
according to CME.
J.P. Morgan economist Michael Feroli told clients Thursday the
latest data "should ease some of the low inflation concerns among
wavering [Fed] officials, and we continue to expect the leadership
will prevail in getting another hike in at the December
meeting."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
September 19, 2017 13:44 ET (17:44 GMT)
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