Fed Hike Aftermath Series: Fed’s Kashkari maintains his dissenting stance against rate hikes

Minneapolis Fed President Neel Kashkari, who has dissented both the times when the U.S. Federal Reserve voted for rate hikes in 2017, has maintained his dissenting stance and it looks very much likely that he would dissent for the third time when the U.S. Federal Reserve increases interest rates at the December meeting.

In a Town Hall event at Winona State University in Minnesota, Kashkari said that he sees no reason to put brakes on the economy as inflation is low. Inflation in the United States has slowed to just 2 percent y/y in October after reaching a recent peak of 2.7 percent in February 2017. The core inflation rate, that strips the effect of volatile components like energy and food has declined to 1.8 percent y/y, as of October from 2.3 percent in January this year. Both the rates still remain well below their long-term average.

Mr. Kashkari said that he favors allowing the labor market to strengthen further before hitting the brakes, ““My perspective is, let’s allow the job market to continue to strengthen, allow more Americans to go back to work, allow wages to strengthen, and then, if we start to see inflation creep back up to our 2-percent target, we can tap the brakes then….I don’t see any reason why we have to tap the brakes when inflation is continuing to run low.” The U.S. unemployment rate has declined to 4.1 percent as of October this year.

He went a step further to suggest the Federal Reserve should be okay with allowing U.S. inflation to run at 2.7 percent for five years as it tolerated 1.3 percent inflation in the previous five.