Fed rate hikes may be damaging the economy – Kashkari

The interest rate hikes implemented by the US Fed since December 2015 may be “doing real harm” to the economy, Minneapolis Fed President Neel Kashkari said on September 5.

In his view, he said, that would explain why inflation remains below the Fed’s 2% target and the labour market has somewhat slowed. In August, the US economy created 156,000 jobs, but the unemployment rate rose slightly to 4.4% from 4.3% in July.

“We at the Fed might be making one of two fundamental mistakes. Number one, we might be overestimating how tight the labour market is,” Kashkari said. “And number two, we at the Fed may have allowed inflation expectations to drift lower. Both of those, if those really happened, could explain the low wage growth, the low inflation and the seemingly tight labour market.”

Kashkari has repeatedly positioned himself against a tighter monetary policy and allowing inflation to rise above the target. “These premature rate hikes that we are embarking on, they’re not free and I think we need to remind ourselves of that.”