Fed's Neel Kashkari says rate hikes 'were not called for'

The Federal Reserve erred by raising interest rates during the recession, Minneapolis Fed Chairman Neel Kashkari said Thursday.

In an unusually harsh rebuke of central bank shares, Kashkari said the central bank should not have monetary policy with inflation so low. Instead, he said, the policymaking of the Federal Open Market Committee should be signaled that it would be more likely that the Fed would be serious about stimulating the economy.

The FOMC hiked rates nine times starting in December 2015 as part of an effort to normalize after the Great Recession. Those hikes came as well as Fed's goal.

"In my view," Kashkari said during a speech in Santa Barbara, California.

The remarks came as part of a review of the Fed and its approach to the economy.

They also jibe closely with feelings from the White House. President Donald Trump has repeatedly criticized the rate and has said the economy would be much stronger had the Fed backed off.

While acknowledging the aggressive measures of the central bank, it was decided that it would be a good idea to pay $ 4.5 trillion – Kashkari said the Fed should have kept its foot on the pedal.

It is still growing, but inflation is averaging 1.6%.

"With inflation somewhat too low and the job market is still going strong," he said.

Kashkari said one of the main problems was that Fed officials did not see how low inflation could be. The current unemployment rate is at 3.6%, the lowest reading in nearly 50 years.

"I believe that we are in the labor market, thinking we were at maximum employment when, in fact, millions of Americans still wanted to work, and fearing that we hit maximum employment, inflation might suddenly accelerate, and we would then have to raise quickly to contain it, "he said.

"The headline unemployment rate has been giving a faulty signal," he added.

Even with the low rate, another gauge that includes discouraged worker and those holding part-time positions for economic reasons remains at 7.3%, reflective of slack remaining in the job market.

Kashkari said the lesson of the tightening cycle is that the Fed will probably want to be more aggressive with policy in the next downturn. Evidence of tightening too fast in the fourth quarter of 2018, when markets feared the Fed would continue to rise and fall.

"Perhaps we have achieved greater employment, but it has been more accommodative," he said, adding that "by raising rates more quickly than underwritten by our symmetric framework, we believe in the risk of overtightening and recession. Markets signaled this risk with the steep drop in bond yields late last year. The FOMC 's quick adjustment to the future, and thankfully, seems to have mitigated this risk for now.

However, he said he fears what may happen next day if the Fed does not have a better job of listening to economic and market signals.

"Kashkari said," For our current framework to be effective and credible, we must have a positive attitude towards symmetry, "Kashkari said. "If we would like to be honest, we would like it to be a very good idea." But we must honestly ask ourselves: next time? Count me as skeptical. "