Responding to questions in an AMA session on Twitter, Minneapolis Fed President Neel Kashkari said that keeping rates low to spur wage growth would translate into lower mortgage costs and help the housing market in the U.S.
Key takeaways from the AMA
Q: If the economy is so strong, why did Fed stop raising rates and there’s renewed talk of QE4 (not that shadow QE ever stopped)?
Kashkari: We have a dual mandate of stable prices and maximum employment I have been arguing there is still slack in the labor market (so not yet at maximum employment) and inflation is still below target, so no need to tap the brakes.
Q: What is the single greatest factor in determining interest rates?
Kashkari: Unfortunately there is no one dominant factor. We look at a lot of data to understand where the economy is relative to our dual mandate goals (stable prices and maximum employment). Inflation data, wage data, employment data all very important.
Q: What are your thoughts on an inverted yield curve in the current environment? Still as relevant as it has historically been?
Kashkari: Yes. I’m concerned. I don’t necessarily believe it causes recessions but I believe it’s giving feedback that monetary policy is close to neutral today. We don’t want contractionary monetary policy unless we have good reason. We should be careful not to end the expansion.