Minneapolis Fed President Neel Kashkari said in a speech in Santa Barbara that Fed could have misread faulty signals from the labor markets. And current situation suggests monetary policy was too tight in this recovery. Fed should be patient and allow inflation to overshoot target. Yet, he doesn’t see cutting rates offer any help. Overall, he advocates a wait-and-see with patience approach.
Kashkari said Fed could have “misread” the labor market and feared that “if we hit maximum employment, inflation might suddenly accelerate”. Thus, “we would then have to raise rates quickly to contain it”. However, the “headline unemployment rate has been giving a faulty signal”. Considering inflation “somewhat too low” and job market “still showing capacity”, he added, “the only reasonable conclusion I can draw is that monetary policy has been too tight in this recovery”.
On monetary, policy, Kashkari said “for our current framework to be effective and credible, we must walk the walk and actually allow inflation to climb modestly above 2 percent in order to demonstrate that we are serious about symmetry”. However, he also told reporters that “I am not sure that cutting rates would do much to inflation expectations.”
