Central Banks

Friday, June 21, 2019 - 10:08

MNI POLICY: Fed's Kashkari Wanted 50bp Cut, Aggressive Policy


By Jean Yung

WASHINGTON (MNI) - Federal Reserve Bank of Minneapolis President Neel Kashkari said Friday he advocated this week for an immediate 50-basis-point interest rate cut and a commitment not to raise rates again until core inflation hits 2% again on a sustained basis.

"I believe an aggressive policy action such as this is required to re-anchor inflation expectations at our target," he said in an online essay.

The FOMC opted to hold rates steady at 2.25% to 2.50% on Wednesday, though a number of officials penciled in rate cuts in the remainder of the year. Kashkari has long urged the Fed to keep interest rates lower, dissenting against decisions to hike three times in 2017. He does not vote on interest rates this year.

In the past few months, "the job market has slowed, wage growth has flattened, inflation has continued to come in below our 2% target, inflation expectations have fallen, and the yield curve has inverted," he said. The FOMC has been "too optimistic" in forecasting inflation will return to 2% and effectively treated the target as a ceiling.

The cost of cutting rates early is "much smaller" than the cost of cutting too late, he argued. "If we wait until we are sure the economy is slowing and inflation expectations fall further, it will be much harder for us to reverse those concerning developments and sustain the economic expansion."

"We will need to teach the markets a new reaction function that credibly treats 2% as a symmetric target," he said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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