KSTR - The Fed Should Cut Rates Before A Credit Crisis Forces Their Hand

2024-05-14 00:55:00 ET

Summary

• Minneapolis Fed President Neel Kashkari issued an essay saying that the recent inflation data raise questions about whether their monetary policy is restrictive enough to fully return price growth to the central bank’s 2% target rate.
• Kashkari singled out persistent housing inflation as a sign that the “neutral” interest rate – meaning a rate that neither restricts nor stimulates the economy – may be higher in the short term.
• One major impediment to inflation meeting the Fed’s 2% target is high shelter costs (called “Owners’ Equivalent Rent” in the CPI).

The Fed seems determined to keep kicking the rate cut can down the road. Last Tuesday, Minneapolis Fed President Neel Kashkari issued an essay saying that the recent inflation data raise questions about whether their monetary policy is restrictive enough to fully return price growth to the central bank’s 2% target rate.

Specifically, Kashkari singled out persistent housing inflation as a sign that the “neutral” interest rate – meaning a rate that neither restricts nor stimulates the economy – may be higher in the short term....

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