FED
Kashkari (non-voter) has published an essay on "Why I Supported Cutting Rates Last Week":
- Unclear just how tight policy is: “While there remain mixed signals about the underlying strength of the U.S. economy and I remain uncertain just how tight policy is, I do believe policy remains tight today.”
- But still tight after 50bps cut: “Given both the significant progress we’ve made in reducing inflation and also the softening of many labor market indicators, in my judgment the balance of risks has now shifted away from higher inflation toward higher unemployment. This could potentially jeopardize achievement of maximum employment. This risk assessment led me to support the FOMC’s decision last week to reduce the federal funds rate by 50 basis points. […E]ven after the 50 basis-point cut, I believe the overall stance of monetary policy remains tight.”
- He reveals in in the below chart that his dots where exactly in line with the median participant this month.
- Justification for higher long run dot: "I have adjusted my submission to the Summary of Economic Projections as the data have changed. I have slowly increased my estimate of the longer-run federal funds rate as we have continued to be surprised by the economy’s resilience despite high policy rates, a combination that suggests the neutral rate may have climbed at least temporarily. The longer this economic resilience continues, the more signal I take that the temporary elevation of the neutral rate might in fact be more structural."
- Data dependence: “Our path forward will depend on the totality of the incoming data for economic activity, the labor market and inflation. Ultimately this will guide us to where the policy rate eventually settles.”
278 words