Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said the U.S. labor market has "more room to run," suggesting he does not believe the central bank should raise rates quickly to head off inflation.
Kashkari said in an appearance broadcast on the bank's website that it has been a "big surprise" that so many workers have returned to the workforce over the past year and a half, and he is "cautiously optimistic" that the pattern will continue.
"I think that process has more room to run," he said.
The Fed has raised its short-term interest-rate target only twice since the Great Recession, and last month decided to keep rates unchanged so as to allow the labor market to strengthen further.
Kashkari, a voting member of the Fed's policy-setting panel this year, declined to say when he thinks the Fed should next raise rates. His remarks, though, left little doubt that he is not among the policymakers who are chomping at the bit to do so.
Wages are rising, he said, but they have not reached alarming levels, and he hopes they will climb further. The Fed, he said, aims to allow the economy to grow as fast as it can as long as inflation stays low.
"We don't want to be the ones holding that back," he said.
Kashkari said he has not factored any new fiscal policies into his forecasts because it is not clear what tax or other reforms will be enacted under President Donald Trump.
If the policies boost productivity growth, he said, that could increase economic growth; but if fiscal policies don't boost productivity growth, they could become inflationary, he said.
Kashkari also said the Fed may start to let its massive balance sheet shrink in the "not too distant future," when the economy is strong enough.
(Reporting by Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci)