Minneapolis Fed President Neel Kashkari defended his dissent at last week’s FOMC meeting, arguing that the central bank should begin raising interest rates gradually rather than risk falling behind inflation. Speaking to CNBC from the Aspen Ideas Festival, Kashkari said he was not advocating aggressive tightening but believed the Fed should “start slowly moving up as we get more data in.” He was one of three policymakers who voted for a 25-basis-point rate hike, while the majority opted to keep the federal funds rate unchanged at 3.50%-3.75%.
Kashkari’s central argument was that current monetary policy has yet to become meaningfully restrictive. “I don’t see evidence monetary policy is particularly restrictive right now,” he said, pointing to robust corporate earnings, resilient consumer spending and a labor market that continues to hold up well. While acknowledging that June inflation showed some improvement as oil prices temporarily retreated, he warned that persistent supply shocks continue to threaten the inflation outlook. “We have more work to do to get inflation back down,” he said, adding that he would “rather get going now in small steps than wait till later” and risk having to raise rates much more aggressively.
His remarks sharpen the contrast within the Federal Reserve following last week’s meeting. Just a day earlier, Philadelphia Fed President Anna Paulson argued policy was already “mildly restrictive” and supported holding rates steady while assessing incoming data. Kashkari stopped short of explicitly calling for a September hike, stressing that future decisions would depend on economic data. He also revealed that Fed Chair Kevin Warsh encouraged independent judgment, recalling that Warsh told him to “do what you think is the right thing to do for the economy.
Key Takeaways
- Minneapolis Fed President Neel Kashkari argued the Fed should begin raising rates gradually rather than risk falling behind inflation and being forced into larger hikes later.
- Kashkari believes current monetary policy is not sufficiently restrictive, citing strong corporate earnings, resilient consumer spending and a still-solid labour market.
- Despite some improvement in June inflation, he warned that supply-side inflation risks remain, saying the Fed still has “more work to do” to return inflation to its 2% target.
- Kashkari did not explicitly endorse a September rate hike, emphasizing that upcoming economic data will determine the appropriate policy path.
- His comments highlight the growing divide within the FOMC, contrasting with Philadelphia Fed President Anna Paulson’s view that policy is already “mildly restrictive.”
- Kashkari also said Fed Chair Kevin Warsh encouraged independent judgment, suggesting an open policy debate despite the unusual three dissents at last week’s meeting.
