Federal Reserve Bank of Minneapolis President Neel Kashkari said on Monday that he sees no need to increase U.S. interest rates, given the "flashing yellow" signal from the bond market and the fact that the economy is not in his view yet at full employment.
The Fed last week raised U.S. interest rates for the third time this year and most policymakers forecast a likelihood of at least four more rate hikes by the end of next year. Kashkari is not a voter this year on monetary policy, but his comments Monday show he was likely opposed to the decision, citing the message he sees in slow-to-rise longer-term rates even as the Fed has lifted short-term rates.
"The bond market is saying, 'hey we're not so sure that the U.S. economic growth is going to be very strong in the future years,' so that's a nervousness for me," Kashkari said in a townhall meeting broadcast on the Minneapolis Fed's website. "What I'm paying attention to is, are we overdoing it with our interest rate increases?"
Some Fed officials worry that if the trend in the bond market continues, long-run borrowing costs could be surpassed by short-term rates, creating a so-called inverted yield curve that in the past has been a precursor to recessions. Kashkari said he looks at the yield slightly differently, "as a measure of giving us feedback as to are we running accommodative monetary policy or contractionary monetary policy, and I don't see any reason yet that we should be moving interest rates up and tapping the brakes."
Kashkari was also asked about the effect of a range of Trump administration policies on the economy. Trade tariffs, he said, have not had much effect on the economy so far, and he said he was happy that the administration had reached a trade agreement with Mexico and Canada, because the current trilateral deal has "absolutely" helped the U.S. economy.
The Trump tax cuts, he said, have not led to much business investment outside of the oil sector, and therefore wages have not improved that much.
"That tells me we're probably not really at maximum employment just yet," he said.