By Ann Saphir
(Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari told a town hall in Pierre, South Dakota that he does not think the Federal Reserve should raise interest rates unless wages and inflation start to take off, and that the U.S. economy is a “long way” from that.
With wage growth slow and inflation below the Fed’s 2-percent target, “Why cool the economy down?” asked Kashkari on Thursday. He dissented on the Fed’s interest-rate hikes last year, and though he does not have a vote this year his comments signal he continues to disagree with the gradual rate hikes the Fed currently plans.
A government report on Friday that showed average hourly wages rose 2.9 percent in January may be an early sign of wage increases, Kashkari said, but because it also showed working hours dropped, it was not a “resounding” report.
The Trump administration’s recent tax cuts may boost wages and hiring, he said, but it is too soon to know by how much.
Still, he said, psychology matters, and “psychological scarring” from the financial crisis and Great Recession may be keeping households from borrowing and businesses from raising wages and prices.
And, he said, he has been surprised by how much optimism the tax cuts have engendered, and that sentiment could boost their positive impact.
“It’s not simply an equation,” Kashkari, one of several non-economists in Fed leadership, said of economics. “It also matters what we believe about the future.”