Fed’s Kashkari says interest rates shouldn’t ‘hold the economy back,’ and calls for more cuts

source
Thomson Reuters

  • Minneapolis Federal Reserve Bank President Neel Kashkari said Thursday he argued the central bank should have pursued a steeper interest rate cut at its policy meeting last week.
  • The policy-setting Federal Open Market Committee lowered its benchmark interest rate by a quarter percentage point last Wednesday to a target range of between 1.75% and 2%.
  • “I see no evidence that the U.S. economy is running at capacity or beyond capacity,” Kashkari said at an event at Montana State University Billings.
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Minneapolis Federal Reserve Bank President Neel Kashkari said Thursday he argued the central bank should have pursued a steeper interest rate cut at its policy meeting last week.

“I see no evidence that the U.S. economy is running at capacity or beyond capacity,” he said at an event at Montana State University Billings. “There’s no reason we should have interest rates trying to hold the economy back.”

The policy-setting Federal Open Market Committee lowered its benchmark interest rate by a quarter percentage point last Wednesday to a target range of between 1.75% and 2%. With strong hiring and spending numbers, officials have become split over how to approach trade tensions and other strains on the economy.

“There may come a time when the economy weakens and we would then have to cut more aggressively,” Fed Chairman Jay Powell said at a press conference following the decision. “We don’t know. We’re going to be watching things carefully.”

The central bank has signaled a similar wait-and-see approach, dimming expectations for the start of an easing cycle. But Kashkari – who doesn’t have a vote on the FOMC until next year – argues that it should take action preemptively. He added that he saw negative interest rates, which President Trump has called for, as possible but not likely.

“Could I envisage a series of events that would lead us to have negative interest rates? I do, I could. It’s not my base case, it’s not even my second or third case, but the fact is that it’s so pervasive around the world,” he said.

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