In keeping with his image of a youthful, media-savvy Federal
Reserve bank president, the Minneapolis Fed’s Neel Kashkari took
to Medium Tuesday to discuss his reasoning for keeping interest
rates on hold, as the central bank
unanimously chose to do last week.
His argument was fairly straight forward: Why tighten monetary
conditions when inflation remains below the Fed’s target,
inflation expectations are subdued, and the job market is
probably still not operating at its full potential despite the
low jobless rate?
“The following chart shows both headline and core inflation for
the past 10 years. You can see that both have been below our 2%
target for several years,”
Kashkari writes. Core inflation excludes volatile food and
“Twelve-month core inflation is at 1.7%, and while it seems to be
moving up somewhat, it is doing so slowly, if at all. It is still
below target, and, importantly, even if it met or exceeded our
target, 2.3% should not be any more concerning than the current
reading of 1.7%, because our target is symmetric.”
Another source of concern for Kashkari: “Survey measures of
long-term inflation expectations are flat or trending
In addition, while the official unemployment rate is at a
historically low 4.8%, low participation and high long-term
unemployment are still problematic. “The U-6 measure suggests
that there may still be additional workers who might re-enter the
labor force if the job market remains healthy,” wrote Kashkari,
referring to a broader jobless rate that includes discouraged
workers and those working part-time but want a full-time job.
Add to that the uncertainty generated by some of the recent
political chaos in Washington, and the case for a near-term Fed
rate hike becomes much less compelling.