Kashkari Emerges as Opposing Voice as Fed Shows Optimism

Charts, Commentary, News
  • Presidents Harker, Evans both see more rate increases coming
  • Minneapolis Fed chief doesn’t see 2% core inflation in 2017

The U.S. Federal Reserve could raise interest rates two, three or four times this year, said Chicago Fed President Charles Evans, though his Minneapolis colleague Neel Kashkari argued that there was no need to rush.

“We do not have a high-inflation threat right around the corner,” Kashkari said during an interview on Bloomberg Television Monday, adding that the lack of price pressure affords the Fed patience in raising rates. “I’d be very surprised if core inflation reaches 2 percent this year.”

The Minneapolis Fed chief cast the sole dissent when the Federal Open Market Committee voted on March 15 to raise rates. Kashkari’s stance establishes him as a voice of resistance as the Fed gets moving: as of last week’s meeting, officials forecast two more rate increases this year, assuming their economic projections for low unemployment and near-2 percent inflation are met.

“The data are basically moving sideways, so I’m asking, what’s the rush to raise rates,” Kashkari said. “When the data really call for it, then we should remove accommodation.”

‘Entirely Reasonable’

Kashkari is a first-time voter in 2017 and his comments were in contrast to those of Chicago’s Evans, who also votes on policy this year.

See why too much straight talk on the Fed can be dangerous.

“If the growth outlook solidifies and I have more confidence that inflation is going up, three for the entire year is entirely reasonable,” Evans, who has long been an advocate of a patient approach to raising rates, said earlier on Fox Business. “It could be three, it could be two, it could be four if things really pick up.”

U.S. unemployment has dipped to 4.7 percent, which is near the level most Fed officials see as consistent with maximum employment. The Fed’s preferred gauge of price pressures, excluding food and energy, rose 1.7 percent in the 12 months through January, still a bit shy of its 2 percent goal. Policy makers also view international risks as less threatening than last year, and solid progress at home without major headwinds from abroad have improved their confidence in the outlook.

Philadelphia Fed President Patrick Harker, who also votes on monetary policy this year, separately said that he can’t rule out more than three rate increases this year, and that there probably will be some overshoot on the Fed’s 2 percent inflation goal.

Dot Plot

The Fed’s so-called dot plot — the anonymous chart that displays policy makers’ estimates for rate increases over the next three years — was updated at the March FOMC meeting. All 17 FOMC participants submitted forecasts. Two favored just one hike in 2017; one official penciled in two; nine saw three being warranted; and five policy makers viewed four or more increases as needed.

St. Louis Fed President James Bullard has previously said he only forecasts one increase this year. Kashkari declined to say how many he had estimated, though some Fed watchers say he probably has just one increase written down, while Evans probably has two hikes.

That implies all seven members of the Board of Governors in Washington, including Chair Janet Yellen, Vice Chair Stanley Fischer and New York Fed chief William Dudley, have also probably forecast three increases in 2017.

“They are now converging to the center, with the three-hike plan,” said Laura Rosner, senior U.S. economist at BNP Paribas in New York. “That is significant because they seem to have had the most influence in the last couple of years. And it also means probably greater confidence around the plan to go three times.”

Read this article in its original format at Bloomberg.com


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