Fed’s Kashkari argues against U.S. central bank’s view of workforce participation

FILE PHOTO: Minneapolis Fed President Neel Kashkari speaks during an interview at Reuters in New York
FILE PHOTO: Minneapolis Fed President Neel Kashkari speaks during an interview at Reuters in New York February 17, 2016. REUTERS/Brendan McDermid

March 25, 2019

By Ann Saphir

SAN FRANCISCO (Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari, whose longtime opposition to further interest-rate hikes was last week suddenly ratified by a majority his colleagues, said on Monday he still has a “serious beef” with a key feature of how the Fed assesses the economy.

In a series of tweets, Kashkari argued against what he said was the Fed’s view: that the unexpected influx of people into the U.S. workforce over the past few years is a sign of a high-pressure economy that needs higher interest rates to cool it down.

“If people are choosing to work… why is that unsustainable?” Kashkari tweeted. “Why don’t they represent a greater supply potential than we realized rather than some unsustainable overheating?”

Labor force participation has bucked economists’ expectations in recent years, stabilizing rather than falling as more Americans previously on the sidelines of the labor market have joined back in.

While an aging population will push down labor force participation over the long term, Kashkari said, a short-term reversal of that trend need not set off alarm bells.

For a while now, Kashkari and St. Louis Fed President James Bullard had been a lone pair at the Fed arguing against a steady stream of interest rates hikes.

Last week, at least nine of their colleagues joined them in the view that the Fed should not raise rates at all this year, according to forecasts released at end of the Fed’s policy meeting.

Kashkari’s tweets, though, suggest he still sees himself at odds with the Fed’s mainstream thinking.

“I keep coming back to this: we should focus on actual inflation, inflation expectations, and real wage growth (net of productivity) to determine if the economy is running above or below potential,” he said.

(Reporting by Ann Saphir; Editing by Lisa Shumaker)

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