(Reuters) - Minneapolis Federal Reserve President Neel Kashkari said on Friday that he was not alone at the U.S. central bank in his view the Fed should have waited to raise interest rates until it was sure the recent drop in inflation really is temporary.
“I wish other people were joining me in my dissents, I’ll say that,” Kashkari said in a phone interview with Reuters. “I think that there’s more sympathy for my views, but maybe people aren’t ready to take action.”
Kashkari voted against the Fed’s decision Wednesday to raise rates by a quarter of a percent. He also voted against the Fed’s first rate hike this year, in March.
St. Louis Fed President James Bullard, who unlike Kashkari does not vote on the Fed’s monetary policy committee this year, has said for about a year that he believes rates do not need to rise in a low-growth environment like the current one. “He’s looking pretty smart,” Kashkari said.
It was not clear if Kashkari was suggesting there were others besides Bullard at the Fed also advocating for a pause on interest-rate hikes, and he declined to discuss colleagues’ views expressed behind closed doors. Minutes of the two-day meeting earlier this week will be published in about three weeks.
When Narayana Kocherlakota ran the Minneapolis Fed, he too dissented against policy tightening, but Kashkari says he has not consulted with his predecessor, a PhD economist who now teaches at the University of Rochester.
“My predecessor and I could not be more different,” said Kashkari, who has been an aerospace engineer, a Republican candidate for California governor, and the head of the U.S. government’s bank bailout program in the financial crisis. “We could not be coming at this problem from more different starting points and yet we are ending up largely at the same place.”
Kashkari detailed his reasons for dissent in an essay published earlier on Friday, saying they largely turned on his concern about falling inflation despite near-full employment in the U.S. economy.
In the Reuters interview he said he believes his colleagues may be increasingly uncomfortable with low interest rates because they fear making the same mistake the Fed did in the 1970s, when it failed head off what became runaway inflation.
“The risk of us being stuck at 1.5 percent inflation they probably feel like is not terrible,” Kashkari said. But in his view, he said, waiting to raise rates further is the less costly option. “We have plenty of time as a committee to respond” if inflation does begin to surge, he said.
Kashkari also said he would have liked to specify a date at which the Fed will begin trimming its $4.5 trillion balance sheet, perhaps October 1 or November 1. By not doing so, he said, the Fed invites “unnecessary” market anxiety around the Fed’s July and September meetings.
Still, Kashkari, who ran the Treasury’s bank bail out program during the 2008-2009 financial crisis, said the level of concern he feels now is “no comparison” to the feeling he had back then.
“If we are making a mistake, we are making a small mistake now that I think we can recover from,” Kashkari said in the interview. “I am not sounding an alarm bell like, ‘Iceberg ahead!'”
To Kashkari, years of missing on inflation forecasts does not mean that the Fed should raise its target for inflation, as Fed Chair Janet Yellen on Wednesday said should be considered by central banks globally.
“I can’t fathom how we could take that on at this minute,” Kashkari said, adding that as a longer-term, big-picture question it is a legitimate topic of study. But with inflation now falling to 1.5 percent by the Fed’s preferred gauge, “even having that conversation right now makes no sense.”
Nevertheless, he said, Yellen has been an “excellent” chair. Yellen’s term ends in early February 2018 and earlier this week declined to talk about her plans after.
“I really hope and believe she should be reappointed because there’s nobody I can think of that would do better,” Kashkari said.
Reporting by Ann Saphir; Editing by Chizu Nomiyama