Low U.S. inflation expectations are sapping the Federal Reserve's ability t...
SANTA BARBARA, Calif. - Low U.S. inflation expectations are sapping the Federal Reserve’s ability to respond to a future downturn, Minneapolis Fed President Neel Kashkari said Thursday, calling for the Fed to allow inflation to rise above 2% to bring the economy back to full strength.
“In my view, we have not implemented our current framework as it was designed to be implemented,” Kashkari said in remarks prepared for delivery to the Santa Barbara County Economic Summit, referring to the Fed’s 2% inflation target. “For our current framework to be effective and credible, we must walk the walk and actually allow inflation to climb modestly above 2 percent in order to demonstrate that we are serious about symmetry.
Traders of short-term interest-rate futures, by contrast, are betting the Fed will need to cut rates later this year to combat an economic slowdown. In his prepared remarks, Kashkari stopped short of calling for a rate cut, instead casting his comments in the context of the Fed’s current effort to figure out if a different policy framework could deliver better results for the economy and for inflation.
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