Oct 11, 2019

Fed’s Kashkari pushes back against Trump pressure

Collage of Minneapolis Fed president Neel Kashari and city imagery

Images: The Image Bank/Getty Images and John Lamparski/Contributor/Getty; Illustration: Axios Visuals

As the Federal Reserve signals it may cut interest rates again later this month, Minneapolis Fed president Neel Kashkari says the central bank is tuning out calls by President Trump to do more to support the economy — and relying on the strength of the data it collects to justify its moves.

Why it matters: Trump’s attempts to strong-arm the Fed, which has already slashed borrowing costs twice this year, have grown more frequent in recent weeks — and put the central bank on the defensive about its apolitical posture.

"The louder the politics gets turned up, the more we hug data and analysis," Kashkari, whose calls for lower interest started before Trump took office, tells Axios.

Between the lines: The Fed's stance on monetary policy has come full-circle: About 1 year ago, it was raising rates. In July, it announced the 1st rate cut since the financial crisis in an attempt to keep the record economic expansion going as risks — namely, Trump's trade war — threaten economic growth.

  • Businesses have pulled back on spending in the face of the uncertainty, and the pace of hiring has slowed.
  • "People are nervous about where [trade is] going to go, especially obviously for exporters or global companies," says Kashkari, who gets a vote on the rotating monetary policy setting committee next year.
  • "If everyone is spooked, that’s enough to maybe tip the economy over."

On whether or not the Fed's actions to lower rates could give Trump cover to ramp up the trade war — a topic of a highly controversial op-ed by former New York Fed president Bill Dudley — Kashkari says that inflation running below its 2% target is a major factor for the Fed's move, too.

Let's say, if we had inflation well above target, and we were worried that inflation expectations were climbing, I think then we would be much more reluctant to say, 'Well, we're going to try to cut rates because of the trade war.' ... Setting aside what the cause is, just looking at that data — that data would imply you want a more accommodative monetary policy.
— Minneapolis Fed president Neel Kashkari

The big picture: The Fed is hearing from community leaders and activists in a series of unprecedented “listening sessions“ across the country. The events, as chairman Jerome Powell has pointed out many times, have convinced the Fed of the importance of keeping the recovery going for communities that are still convalescing from the financial crisis.

  • “The conventional wisdom was monetary policy does not have a role to play in distributional outcomes ... We’ve now learned that monetary policy has the biggest role to play because we need to create the context for all of these different groups to be able to participate in the economy,” Kashkari tells Axios.

What’s next: Although he won't have a vote at this month's Fed meeting, Kashkari would be voting with what may be the majority.

  • I will likely be in favor of cutting interest rates in October," he tells Axios. "But I don't know how low we have to go — it really is going to depend on how the data comes out."
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