Replies to post #332437 on Option Millionaires

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Minneapolis Fed president tweets his views on interest rates, economic outlook
Minneapolis Fed President Neel Kashkari on Friday said he was unsure about where the economy is headed and said his views on the central bank's monetary policy were also in flux.
In a series of tweets, interspersed with pictures of his newborn daughter, Kashkari said was still trying to assess whether the recent slowdown in growth and jobs "was real or just a blip." He said it would take time and more data to assess.
One of the most dovish regional Fed presidents, Kashkari appears to have won over his colleagues. On Wednesday, the median forecast of Fed officials was for no more interest rate increase this year and only one in 2020.
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A key question I am trying to assess is whether the recent slowdown in growth and jobs was real or a just blip. Need more time and data to assess.

— Neel Kashkari (@neelkashkari) March 22, 2019

)
Another key issue, he said, was that the impact of last year's four quarter-point rate increases might still have not impacted the economy.
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Another key issue is that monetary policy works with a lag. There is a bunch of tightening in the pipeline from prior rate increases. What effect will it ultimately have on the economy?

— Neel Kashkari (@neelkashkari) March 22, 2019

)
The Minneapolis Fed president was also unsure about whether the Fed's benchmark fed funds rate was still below the " neutral" level that neither boosted or slowed growth.
The Fed's benchmark interest rate is now in a range between 2.25% and 2.5%. That's slightly below the 2.5% rate that Kashkari said he always thought was neutral.
Recent developments have caused him to reconsider this, he said.
"The very flat yield curve tells me we are likely close to neutral," he said. And he added that he "hoped' the current Fed policy rate was not already "contractionary."
Earlier in the day, the spread between the 3-month Treasury bill and the 10-year note inverted for the first time since 2007. The Dow Jones Industrial Average dropped sharply as the stock market keyed off the bond market indicator.
Read:Yield curve recession indicator flashes red (http://www.marketwatch.com/story/yield-curve-recession-indicator- flashes-red-as-10-year-yield-falls-below-3-month-yield-2019-03-22)
The Minneapolis Fed president, who is not a voting member of the Fed's interest-rate setting committee this year, said he supported the Fed's decision this week to hold policy steady and set out the timetable for ending its ongoing program to shrink its balance sheet.
Don't miss: Fed jettisons 2019 rate-hike plans (http://www.marketwatch.com/story/fed-seeing-slower-growth-and-softer- inflation-now-projects-no-rate-hikes-this-year-2019-03-20)
Central to Kashkari's dovish view is that the labor market still has some "slack" even thought the unemployment rate has sunk to 3.8%.
He argued that rising wages have pulled people into the labor force who had not been counted as unemployed.
"If wages continue to rise, it is likely more people will choose to work. The official unemployment rate doesn't capture this," he said.
"Until we see wage growth, net of productivity, pick up and signal future inflation above 2%, I will continue to see slack in the labor market," he said.
"If inflation is close to or below our [2%] target, and there is no slack, no need to tap the brakes," he said.
Even some modest above-target inflation should not be concerning given that inflation has been below target for years, he noted.
See:The last time inflation ran consistently above 3% was 26 years ago (http://www.marketwatch.com/story/the-fed-is- bashful-about-raising-interest-rates-because-of-a-quarter-century-of-low-inflation-2019-03-20)