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Kashkari says Fed may have harmed economy with rate hikes

06 Septembre 2017

Later, Minneapolis Fed President Neel Kashkari will be speaking at the Carlson School of Management in Minneapolis while the Dallas Business Club will host a conversation with Dallas Fed President Robert Kaplan in the late afternoon in Dallas.

Shares of financial firms were hit by dovish comments from Federal Reserve Governor Lael Brainard on Tuesday, who said the US central bank should be cautious about raising short-term interest rates further until policy makers are confident of overcoming the "persistent failure" to reach 2% inflation. "These premature hikes that we've been embarking on are not free and we need to remind ourselves of that".

His comments followed a speech earlier Tuesday in NY by Fed Governor Lael Brainard, who urged caution in raising interest rates again given low inflation.

The US central bank is expected to leave rates on hold at its Sept 19-20 gathering in Washington while announcing the timing of a gradual process to shrink its US$4.5 trillion balance sheet. Only a quick rebound in prices would allow the Fed to follow its June forecast.

A run of soft inflation data in the USA has been contributing to a two-month decline in Treasury yields.

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In a Reuters poll published on Friday, 24 of 33 economists surveyed said Canada's central bank was most likely to raise interest rates in October.

"If we don't get the good kind of inflation, which is wage-induced, it's just more pain for everybody - and if the yen is stronger, it's not going to help", Wakabayashi said. Brainard, a permanent voting member on the Fed's monetary policy committee, has in the past convinced colleagues to delay tightening.

A record of the FOMC's last meeting in July showed policy makers puzzled over a recent deceleration in U.S. consumer price inflation despite continued declines in the unemployment rate, which Kashkari said Tuesday "may be less perplexing than we think".

Brainard remained uneasy over inflation trends given that the inflation rate has consistently been below the target rate during the past 5 years. My own view is that we should be cautious about tightening policy further until we.

"Maybe our rate hikes are actually doing real harm to the economy", said Kashkari, who has dissented against the Fed's rate hikes this year.