Exclusive: Fed's Kashkari opposed to rate hikes at least through 2023
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[June 19, 2021] By
Ann Saphir
(Reuters) - Minneapolis Federal Reserve
President Neel Kashkari said on Friday he wants to keep the U.S. central
bank's benchmark short-term interest rate near zero at least through the
end of 2023 to allow the labor market to return to its pre-pandemic
strength.
"The vast majority of Americans want to work, and I am not ready to
write them off – and I want to give them the chance to work," Kashkari
told Reuters in his first public comments since the end of the Fed's
policy meeting earlier this week. "As long as inflation expectations
remain anchored ... let's be patient and let’s really achieve maximum
employment."
Kashkari's remarks show he's in a decided minority in an increasingly
hawkish Fed, which on Wednesday wrapped up a two-day meeting with an
unexpected result: with inflation on the rise, most Fed policymakers now
see a case for starting interest rate hikes sooner.
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Just three months earlier the clear majority of policymakers favored no
change to the current level of borrowing costs; on Wednesday, the
central bank's quarterly summary of economic projections (SEP) showed 11
of 18 Fed policymakers penciling in at least two
quarter-percentage-point rate increases by the end of 2023.
"I still have no hikes in the SEP forecast horizon because I think it’s
going to take time for us really to really achieve maximum employment,
and I do believe that these higher inflation readings are going to be
transitory," Kashkari said in an interview with Reuters.
In the interview, Kashkari said he believes higher prices are being
driven by a reopening economy and will subside as supply constraints
recede.
With employment still short of its pre-pandemic level by at least 7
million jobs, he said, "the labor market is still in a deep hole,"
adding that he believes full employment means a return to at least
pre-pandemic labor market strength, if not beyond.
'VERY ORDERLY WAY'
Kashkari, however, showed little discomfort with the Fed's decision this
week to open a discussion on when and how to reduce its $120 billion in
monthly purchases of Treasuries and mortgage-backed securities (MBS),
the first step in moving away from the extraordinary support for the
economy that Kashkari feels is still needed.
"I think that (Fed Chair Jerome Powell) is leading us on a path in a
very orderly way to have the discussion and look at the data and to make
these adjustments prudently," he said.
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![](../images/061921PIX/busine3.jpg)
President of the Federal Reserve Bank on Minneapolis Neel Kashkari
speaks during an interview in New York, U.S., March 29, 2019.
REUTERS/Shannon Stapleton
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Once the Fed does determine it's time to taper its asset-buying program,
Kashkari said, he expects to follow the same blueprint as in 2014, when the Fed
trimmed its purchases of MBS and Treasuries at a steady, predictable pace;
reducing MBS purchases more quickly, as some have proposed, would have only a
modest cooling effect on the hot housing market, he said.
But, at least for Kashkari, it will probably take beyond September to have
enough data to make a judgment on whether there's been sufficient labor market
progress to merit any change.
By the fall, he said, schools will be open again, the risk of COVID-19 infection
will hopefully have receded, and special pandemic unemployment benefits will
have run out. While that should set the stage for more Americans to return to
the workforce, it could take longer to see a difference in wages and labor force
participation, both critical gauges for the strength of the labor market.
His assessment of the labor market, he said, will color his evaluation of
inflation data.
Should there be less improvement in the labor supply than he expects, Kashkari
said, he may need to reevaluate his assessment of full employment and,
therefore, of how close the labor market is to reaching that goal, and whether
the rise in inflation will stop short of becoming persistent.
"The bar for me is very high to reach such a conclusion," he said.
At least some of Kashkari's colleagues may already be there, though, if the "dot
plot" of Fed rate-hike expectations, published as part of the SEP, are any
guide. They show at least seven policymakers expect a liftoff in rates next
year, a number that includes St. Louis Fed President James Bullard.
"It was meant to be a tool providing dovish forward guidance," Kashkari said of
the "dot plot."
![](http://archives.lincolndailynews.com/2021/Jun/19/images/ads/current/cca_laptop-sda021709.png)
"It ended up being a tool that provided hawkish forward guidance ... I continue
to think we ought to just kill the 'dot plot.'"
(Reporting by Ann Saphir; Editing by Paul Simao)
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