Kashkari Says Current Fed Monetary Policy Stance Is Appropriateby
Minneapolis Fed chief gives first speech on monetary policy
Says he is neither hawk nor dove when it comes to rates
The U.S. central bank’s current monetary policy stance is appropriate because inflation remains low and there is scope for more improvement in the labor market, Federal Reserve Bank of Minneapolis President Neel Kashkari said.
“Given the lack of notable price and wage pressures and the possibility of drawing more people back into the labor market, I believe the current accommodative policy stance is appropriate,” Kashkari said in prepared remarks Monday in Minneapolis, marking his first speech explicitly on the topic of monetary policy since joining the Fed at the beginning of the year.
Kashkari, the former U.S. Treasury official who led the country’s 2008 bailout program for big banks, has been an outspoken critic of too-big-to-fail lenders. He’s used most of his public appearances this year to talk about the dangers they pose to the economy.
“Not every issue will be advanced by drawing more attention to it, and this is why I have been more hesitant to speak out about monetary policy, even though I do have views about the right course of action,” he said. “I think market participants are too focused on the Fed, and I am reluctant to draw even more attention to short-term monetary policy decisions, when attention should be focused on solutions to longer-term issues.”
The 17-member Federal Open Market Committee that is responsible for setting interest rates, of which Kashkari is a participant, elected at its most recent meeting at the end of April to leave its benchmark policy rate unchanged. Investors currently see little scope for an increase in the rate’s current target range of 0.25 percent to 0.5 percent at its next meeting on June 14-15, according to interest rate futures prices.
Kashkari, who will be an FOMC voter in 2017, stressed the limited role of monetary policy in bringing labor markets to full employment, but said it “can have at least some impact,” adding that “if we can continue bringing displaced workers back into the labor force, we should.”
“Fed watchers might conclude from these remarks that I am a so-called dove,” he said. “But a year or two from now, if different economic conditions lead me to call for less accommodative policy, they might conclude that I have reversed myself and become a hawk. The truth is neither.”
Kashkari’s predecessor at the helm of the Minneapolis Fed, Narayana Kocherlakota, switched over the course of his six-year tenure from being quite hawkish on Fed policy to becoming one of the central bank’s most outspoken doves. Kocherlakota argued against raising interest rates while inflation remained below the Fed’s 2 percent target and advocated instead that it take additional steps to lift price pressures.