On Wednesday the Federal Reserve did what everyone expected and raised rates a quarter-tick, citing rising inflation, solid job gains, yadda yadda. But the bad boy of the Federal Open Market Committee was having none of it. Neel Kashkari, voting in just his second committee meeting, raised his metaphorical axe and brought it down hard on the policy consensus of his fellow voting Fed officials.
See, Kashkari isn't your average Fed president. He's an aerospace engineer turned Goldman-trained Treasury veteran who once ran for governor in California and lets off steam by felling trees in the remote California woods. So don't expect him to fall in line with Yellen et al so easily.
So why did Kashkari find it prudent to hang out at 1/2 percent to 3/4 percent while the rest of the crew moved on? He hasn't tweeted about it (yet). But returning to the last time the committee met, in February, we can find some clues in a post he penned on the feels depository Medium, whose every moody submission must follow the template “Why I ___.” Kashkari obliged with his post, titled “Why I Voted to Keep Rates Steady.” After examining some labor market measures, he concludes:
The bottom line is the job market has improved substantially, and we are approaching maximum employment. But we aren’t sure if we have yet reached it. We may not have. In 2012, the midpoint estimate among FOMC participants for the long-term unemployment rate was 5.6 percent — the FOMC’s best estimate for maximum employment. We now know that was too conservative — many more Americans wanted to work than we had expected. If the FOMC had declared victory when we reached 5.6 percent unemployment, many more workers would have been left on the sideline.
At first blush, he sounds like Yellen did Wednesday declaring, “We’re closing in on our employment objective.” But rather than anticipating that full labor force with a preemptive rate hike, Kashkari is content to just hang out.
It might be more instructive to look at inflation. On that front, Kashkari concluded:
Inflation is still below our target. While there are some signs of inflation slowly building toward our target, it isn’t happening rapidly, and inflation expectations appear well-anchored.
And even if inflation suddenly took off:
The FOMC has extraordinarily powerful tools to deal with a surprise burst of inflation. We can always raise rates, quickly and aggressively if need be. [...] From a risk management perspective, that suggests, if we are to err, it is better to err on the side of being more accommodative than being more restrictive.
Yellen, meanwhile, isn't keen on running the economy hot. And, like employment, she said Wednesday that we are “closing in” on the core inflation target of 2 percent, a view that's bolstered by the most recent readings.
Kashkari, the Fed's youngest member, clearly has less of a problem with inflation inching past the Fed's target. He was still picking his nose in grade school when Janet Yellen first joined the Fed at the height of the great inflation of the late 1970s. These are experiences that, research tells us, might impact their personal approaches to inflation.
Or maybe Kashkari just likes to be different.