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Minneapolis Fed's Kashkari says rates are 'close to neutral' but 'slightly contractionary'

Minneapolis Fed President Neel Kashkari signaled that he would favor the Federal Reserve continuing to lower the benchmark interest rate. But he also noted that rates are “close to neutral.”

“My base case scenario is not a recession,” Kashkari said in an interview at Yahoo Finance’s All Markets Summit on Oct. 10. “But the risks have increased to the downside.”

Kashkari has been among the more outspoken members of the central bank in calling for more aggressive rate cuts, arguing that the Fed ought to be taking insurance against a possible downturn. The former Goldman Sachs banker and Californian gubernatorial candidate advocated for cutting by 50 basis points in June, shortly before the Fed cut rates by 25 basis points in July and then by another 25 basis points in September.

On Thursday, he characterized rates as being “close to neutral” but also “slightly contractionary.”

“I'm glad that we're easing,” Kashkari said. “But I want to watch the data.”

As the unemployment rate continues to fall past economists’ expectations, Kashkari has argued that the Fed has more room to ease rates to allow the labor market to pull in more workers off of the sidelines.

Kashkari’s commentary comes a day after the Fed released minutes from its September meeting, which saw a record number of dissents since President Donald Trump’s appointee, Jay Powell, began heading the central bank.

Minneapolis Fed President Neel Kashkari speaks during an interview at Reuters in New York, United States on February 17, 2016. REUTERS/Brendan McDermid/File Photo

That meeting detailed a sharp divide among the Federal Open Market Committee’s members on what the next steps should be. Five of the 17 members on the committee telegraphed that they would have preferred holding rates steady in that meeting, while seven of the 17 members forecast one additional rate cut by the end of the year.

As the Fed pivoted from hiking rates last year (which Kashkari opposed) to cutting rates this year, members of the Fed have been split on the degree to which the Fed should be easing policy in the wake of geopolitical uncertainty.

Boston Fed President Eric Rosengren, who voted against both rate cuts this year - the complete opposite of Kashkari’s viewpoint - told Yahoo Finance Oct. 5 that the diverging viewpoints at the Fed are healthy.

“Sometimes we have contentious meetings, sometimes they’re not so contentious,” Rosengren said. “Turning points in the economy are times when people are going to disagree.”

The Fed’s next policy-setting meeting will take place Oct. 29-30, where markets are expecting a 25 basis point rate cut.

Kashkari is not a voting member of this year’s committee but will rotate into a voting role in 2020, per the Fed’s rules.

All Markets Summit

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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