Noting that predictions of higher inflation have been wrong for years, Federal Reserve Bank of Minneapolis President Neel Kashkari said Friday, the Fed can afford to wait to raise rates and that’s why he’s dissented on the last two rate hikes.
With the consumer price index coming in low, “we have the luxury of waiting to see what actually happens. For five or six years the Fed has predicted inflation would rise and for five or six years we’ve been wrong,” Kashkari told the Independent Community Bankers of Minnesota, a speech livestreamed on the Fed’s website.
While the jobs market has been creating new positions, that should lead to strong wage growth and inflation, but it hasn’t, he said, speculating there is more slack in the labor market from people working part-time when they want to work full time.
“My perspective on monetary policy,” Kashkari said, “has been we keep undershooting our inflation target. Wage growth is low. Why do we need to cool the economy down when we’re not seeing these pressures building?” He added, “data has supported that perspective.”
When asked why he is in the minority, he said the other Fed governors are “worried about accelerating inflation.” He explained there would be a problem if instead of a steady rise in inflation, there was a big spike. But he noted he respectfully disagrees with that opinion. “I call this a ghost story. There may be a ghost under this desk, but I can’t prove that there is or isn’t.”