The Federal Reserve’s rate hikes over the past year and a half may be harming the economy, Federal Reserve Bank of Minneapolis President Neel Kashkari said Tuesday.

“Maybe our rate hikes are actually doing real harm to the economy,” Kashkari said in a live streamed question and answer session at the University of Minnesota. “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sideline, leading to lower wage growth and leading to lower inflation and inflation expectations. These premature hikes that we’ve been embarking on are not free and we need to remind ourselves of that.”

He said some of his Fed colleagues may be treating the 2% inflation target as a ceiling, rather than a target.

The situation where the United States has low wage growth and a tight labor market could be explained by “two fundamental mistakes,” he said. The Fed could “be overestimating how tight the labor market is,” or it “may have allowed inflation expectations to drift lower,” he said. “Both could explain the low wage growth and the seemingly tight labor market.”

When asked about asset prices, Kashkari said, the question to ask is whether a correction will cause financial instability. "We have to tread very carefully if we want to do something about asset prices." He said a stock market correction would not trigger a crisis as would a housing market crash.

Federal Reserve Bank of Minneapolis President Neel Kashkari.
Federal Reserve Bank of Minneapolis President Neel Kashkari. Bloomberg News

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