The federal funds rate is near neutral and the Federal Open Market Committee doesn’t need to raise rates much more, according to Federal Reserve Bank of Minneapolis President Neel Kashkari.
“I think we’re close to neutral,” Kashkari told a group in Duluth, Minn. “My view is that we don’t need to raise rates much more.”
But, he noted, the FOMC panelists have a “range of views” on the topic, and most don’t agree with his perception that a neutral rate, where monetary policy is neither accommodative nor restrictive, is close at hand.
Part of the problem stems from the lack of a “good measure” to determine the neutral rates, how much job slack remains and other factors that go into determining monetary policy, Kashkari said in the question and answer session, livestreamed on the Minneapolis Fed website. “We have to try to estimate where neutral is.”
Discussing the labor markets, Kashkari repeated his discussion with business owners who have told him they can’t find skilled workers, but haven’t tried raising wages to attract them, because “they say they can’t pass the costs on to customers.” He said this is an example of “anchored inflation expectations,” which “becomes a self-fulfilling prophecy.”
When asked about new Federal Reserve Board Chairman Jerome Powell, Kashkari has positive comments. “My expectation is Powell will be more transparent about what we do and why,” he said, adding that former chair Ben Bernanke began increasing transparency, and was followed by Janet Yellen, who also increased the provision of information. “It will probably mean mostly continuity.”