REPEAT:MNI POLICY: Fed's Kashkari: Still Don't See Overheating

Repeats Story Initially Transmitted at 21:49 GMT Sep 5/17:49 EST Sep 5

By Sara Haire

     WASHINGTON (MNI) - Minneapolis Federal Reserve Bank President Neel Kashkari

said that he still believes the economy is not overheating yet, prompting him to

continue his objection to rate increases. 

     In comments at a town hall forum in Bozeman, Montana on Wednesday, Kashkari

explained that the Federal Reserve remains in the midst of a debate on whether

there is still slack left in the labor force. According to Kashkari, "the fact

that inflation has been very low" and that "wage growth has been muted" would

suggest that we are not overheating.

     The core PCE price index year/year hit the Fed's 2% target in July and the

core CPI year/year measure has been hovering near 2% as well. Kashkari explained

that despite there being discussions about whether these inflation measures are

accurately reflecting pricing pressures, "most measures are not perfect." As a

result, he noted that officials "look at a lot of different measures" and

economists are always looking for ways to improve the inflation measures.

     Kashkari defended the Federal Reserve's policy of setting interest rates

for the country as a whole, acknowledging that there are regional differences in

terms of inflation and employment, but "we're one country."

     --CORPORATE RISKS

     On a separate note, Kashkari touched upon the anniversary of Great

Recession. He explained that the tools the Fed used following the major

financial crisis, including using taxpayer money to bail out banks, is not

something they want to do again.

     He said that the financial environment is safer now than it was 10 years

ago, but "the winds are blowing in a deregulatory direction" when they should be

moving in the opposite. He also said that he recognizes that there will be

failures, but if a "giant, trillion dollar bank fails, it could bring down the

U.S. economy," he said.

     Kashkari also said that both former Chair Janet Yellen and current Fed

Chair Jerome Powell have done an "outstanding job" in communicating how the Fed

is going to unwind the balance sheet. He added that he would personally "be

nervous" about undoing that clarity and unsettling market expectations.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com