Kashkari: Policy May Not Be As Tight As Assumed With Higher Neutral Rate

Kashkari (non-voter) writes in an online essay that the Fed has time to assess economic data before cutting rates, his first policy-relevant remarks since early November, and that the neutral rate may have increased meaning policy isn’t as tight as assumed.

• “This constellation of data suggests to me that the current stance of monetary policy […] may not be as tight as we would have assumed given the low neutral rate environment that existed before the pandemic. It is possible, at least during the post-pandemic recovery period, that the policy stance that represents neutral has increased. The implication of this is that, I believe, it gives the FOMC time to assess upcoming economic data before starting to lower the federal funds rate, with less risk that too-tight policy is going to derail the economic recovery.”
• That said, “the data are not unambiguously positive, and there are some signs of economic weakness that I take seriously, such as auto loan and credit card delinquencies.”
• Significant progress in inflation fight: “The fact that core inflation is making rapid progress returning to our target—as demonstrated by six-month core inflation coming in lower than 12-month, three-month coming in lower than six-month, and both now at or below target—suggests that we are making significant progress in our inflation fight”.