Federal Reserve

Fed's Kashkari says the Trump market rally is helping policymakers on rates

Kashkari: There is room to run, but reserving judgement

Minneapolis Federal Reserve President Neel Kashkari told CNBC on Thursday the reaction in financial markets to Donald Trump's victory — rallies in stocks and bond yields — is making the job of central bankers easier.

"The markets are speculating about what they think the new Congress and the new president are going to do. And that, so far, seems to be helping the Fed, boosting inflation expectations a little bit," he said.

The wish list for Trump and the Republican-controlled House and Senate include cutting taxes and reducing regulations on businesses.

"That would be good if it actually came true. It would make our jobs a heck of a lot easier. But we need to wait and see," said Kashkari, who was installed in his role at the beginning of 2016. He's not a voting member for the Fed's policymaking committee until next year.

Central bankers have been waiting to see signs of increased inflation before they increase interest rates again.

The notion that interest rates might have to rise more quickly in the face of more inflation from deficit spending and more growth is "fair," Kashkari said on "Squawk Box," ahead of the morning appearance by Fed Chair Janet Yellen on Capitol Hill.

Yellen is set to begin her testimony at 10 a.m. ET before the Joint Economic Committee of Congress. The future for rates and President-elect Donald Trump's economic policies are expected to be front and center.

The market widely expects the Fed to hike rates when it meets on Dec. 13-14. The cost of borrowing money was last increased in December 2015, the first such move in more than nine years.

Kashkari refused to predict whether the Fed might hike rates in December, saying it depends on what happens between now and then.

He's focusing on inflation, which remains under the Fed's 2 percent target, the expectations for future inflation, and the headline unemployment rate.

Kashkari's plan to end 'too big to fail'

On banking, Kashkari said the current regulations since the 2008 financial crisis have lowered the chances of a repeat, but they're still much too high.

Based on an analysis of data from the IMF on past crises, Kashkari said Thursday the odds of a future crisis are now 67 percent over the next century, down from 84 percent.

"I think if most Americans knew that they'd say that's ridiculous. That's much too high," he argued.

On Wednesday, Kashkari unveiled a plan aimed at preventing future government bailouts by forcing the largest U.S. banks to hold so much capital that they would probably decide to break up into smaller parts.

The set of regulations introduced since the crisis known as Dodd-Frank, did not go far enough, he added.

In February, in his first speech as head of the Minneapolis Fed, Kashkari took on the "too big to fail" issue, calling on lawmakers to take radical action to rein in banks and protect taxpayers.

Kashkari, who unsuccessfully ran as a Republican for governor of California in 2014, was the administrator of TARP, the Troubled Asset Relief Program, at the Treasury Department during the 2008 financial crisis.

After leaving Washington, Kashkari joined Pimco as a managing director and head of global equities. Before his time at treasury, he was a vice president at Goldman Sachs.

— Reuters contributed to this report.