Federal Reserve

Fed's Kashkari calls for no more rate hikes until inflation hits 2%

Key Points
  • Minneapolis Fed President Neel Kashkari tells CNBC the central bank should hold off on rate hikes until inflation hits 2%.
  • The Fed reduced its benchmark rate by a quarter point last week and pointed to no additional easing.
Fed's Kashkari: Fed should hold off on rate hikes until inflation hits 2%
Fed's Kashkari: Fed should hold off on rate hikes until inflation hits 2%

The Federal Reserve shouldn't raise interest rates again until inflation accelerates, Neel Kashkari, the president of the central bank's Minneapolis district, told CNBC on Monday.

While Kashkari also said he wouldn't be looking to cut rates, he added that the Fed can be patient now until there are stronger signs of wage growth and some important economic headwinds such as the trade war and Brexit pass.

"Make an announcement today that we will not raise rates until we get core inflation back to our 2% target," Kashkari said during a "Squawk Box" interview. "That's not a commitment to cut rates, that's not a commitment to hold forever, it's simply saying we're not going to raise rates prematurely."

The current core inflation level, excluding food and energy according to the Fed's preferred personal consumption expenditures index, is around 1.7%. It hasn't been at 2% since December.

Kashkari's suggestion for what the Fed calls "forward guidance" came five days after the policymaking Federal Open Market Committee approved a quarter-point rate cut but indicated it likely is done with its easing cycle for a while. He is not an FOMC voter but does get input into policy discussions and will vote in 2020.

Fed Chairman Jerome Powell's remarks in his post-meeting press conference indicated that he and Kashkari are on the same page. There would need to be a "really significant" rise in inflation before rate hikes would be likely, Powell said.

One reason for keeping rates where they are is because the labor market still has room to expand, even with the unemployment rate at 3.6%, near a 50-year low. Kashkari said the measure is not a true gauge of the jobs picture as wage growth continues to be lackluster.

"That has now been true for two or three years going forward, and I think Chairman Powell has really embraced the view that there is still slack in the labor market, and that is just resoundingly good news for the American people and I hope it continues," he said.

The Fed raised rates nine times from December 2015 through 2018 and Kashkari said he disagreed with "all of them." The FOMC then started cutting rates in July, followed by two others. Markets pricing points to virtually no chance of a fourth cut at the December meeting.

"I think as of right now that data looks pretty good. If the economy continues to perform as we expect, I would expect that we're done for a while," Kashkari said. "But we need to see. I think things can change pretty quickly."

He said he thinks current policy is "perhaps slightly accommodative now."

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