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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