Economist's Insights

Fed Doves Fight Forcefully Against Further Rate Increases

Sep 5, 2017

Two of the most dovish Fed officials spoke out Tuesday in support of delaying any further rate increases until there is more confidence that inflation is firming:


Brainard: In remarks before markets opened, Fed Governor Brainard stated, “My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.” These comments were similar to those in a speech she made on July 11 in which she also stated that “the neutral level of the federal funds rate is likely to remain close to zero in real terms over the medium term. If that is the case, we would not have much more additional work to do on moving to a neutral stance.” However, on Tuesday she signaled even more patience, adding, “It could take a considerable undershooting of the natural rate of unemployment to achieve our inflation objective if we were to rely on resource utilization alone. …I believe it is important to be clear that we would be comfortable with inflation moving modestly above our target for a time.”


Kashkari: Minneapolis Fed President Kashkari showed an aversion for future rate increases and an even stronger contempt for those already carried out. According to Kashkari, who has dissented to each rate increase this year, the four rate increases so far this cycle may be “doing real harm” to the U.S. economy. Kashkari said,  “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations. …These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.” Kashkari cautioned that the Fed “might be overestimating how tight the labor market is,” and “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 labor market.”