Kashkari Repeats View the Fed Should Take a Pause on Rate Hikes

(Bloomberg) -- Federal Reserve Bank of Minneapolis President Neel Kashkari, who’s repeatedly called for caution on raising interest rates, said further tightening could trigger a recession.

“One of my concerns is that if we preemptively raise interest rates, and it’s not in fact necessary, we might be the cause of ending the expansion” and triggering the next recession, Kashkari said in a National Public Radio interview posted online Tuesday. He said the Fed should “pause and see how the economy continues to evolve.”

Kashkari dissented three times against rate hikes in 2017, the last year he was a voter on the rate-setting Federal Open Market Committee, and he isn’t scheduled to vote again until 2020. While he’s been somewhat of an outlier in repeatedly urging greater patience, his views indicate policy makers aren’t unanimous on the idea that higher borrowing costs are necessary to keep the economy from overheating.

The Fed is presiding over an economy with the lowest unemployment rate since the late 1960s but with still-modest inflation: prices are moving up at around 2 percent, in line with the Fed’s goal. Most Fed officials call for gradual rate increases against that backdrop, and investors see about a 70 percent probability they will move at their meeting next month.

Kashkari’s views on rates may align him more with President Donald Trump than with other Fed officials, something Kashkari acknowledged in the NPR interview. Later on Tuesday, Trump renewed his criticism of the Fed, describing it as a “problem” and calling for lower interest rates.

“Kashkari has been consistently dovish and hasn’t been a good bellwether for Fed policy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co.

Even so, Philadelphia Fed President Patrick Harker, who isn’t an FOMC voter this year, has indicated that he hasn’t committed to support a December hike.

Kashkari said on NPR that “I’m not seeing signs that the U.S. economy is overheating, so I don’t think we need to preemptively raise interest rates.”

--With assistance from Rich Miller.

To contact the reporter on this story: Jeanna Smialek in New York at jsmialek1@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Scott Lanman

©2018 Bloomberg L.P.