Remember Neel “Crazy Eyez” Kashkari?
He was a prominent character in Hank Paulson’s “GE is having trouble placing its commercial paper so I need this Wall Street bailout bazooka/blank check” drama.
Well as you might be aware, these days Kashkari is Minneapolis Fed chief. Yay.
On Tuesday, Neel decided Medium was the best place to explain to the world why he voted to keep rates on hold in January. It was an “unusual” (to quote CNBC) venue for such an essay, but at least one former trader likes the Donald Trump-style communication approach.
Below, find Bloomberg’s Richard Breslow breaking down Kashkari’s ad hoc missive and remember, when it comes to the Fed’s reaction function, there’s really only one thing that matters:
Via Bloomberg’s Richard Breslow
Yesterday, Minneapolis Fed president and FOMC voter Neel Kashkari published an essay explaining his January vote to hold steady on rates. He also gave a pretty complete explanation on where he thinks things stand. I’ve been increasingly impressed with him; he’s grown into the role well. It wasn’t a scheduled Fed speech, so it didn’t get the same headline coverage you usually expect.
- Still, it gave a lot more information than, “every meeting is live.” A message only Chair Yellen can convey with credibility. Or “Sure, why not? Three hikes this year are a possibility.” The Fed just doesn’t have the credibility to carry that one off without hard numbers flashing bright green
- The other thing I like about his communication approach is it’s grounded in the moment. He believes in looking at economic trends, but is very agnostic about forecasts. He was explicit in being in the wanting to see the whites of inflation’s eyes camp
- He said, “I pay close attention to core inflation.” And then went on to point out that while it “seems to be moving up somewhat, it is doing so slowly, if at all”. It shouldn’t be hard to handicap his reaction function
- His speculation about potential additional slack in the labor market clearly shows he’s not a man in a hurry
- The discussion of potential fiscal stimulus was very important. He puts no weight on the market’s pricing it in. Particularly vis-a-vis inflation expectations. This may be a mistake. He said the market got Brexit and the election wrong thereby proving, in his mind, that investors are “notoriously bad at forecasting political outcomes”. I’d suggest to him that calling popular elections in extraordinary times is very different than sussing out how politicians are leaning
- The current America First attitude notwithstanding, he also made quite clear that he’s an internationalist. And concludes with “Overall, the global environment doesn’t seem to be sending a strong signal for a change in U.S. interest rates”. No believer in divergence is he
- Furthermore, he thinks that if they have to play rate catch- up down the road, it’s not at all clear that’s a problem. And could be better than a gradualist approach, i.e., better to err on the side of accommodation for longer than the opposite
- Somewhat surprisingly, from one who’s been a champion on issues like “too big to fail”, his statement that, while “stock prices, housing prices and especially some commercial real-estate prices appear somewhat elevated, they don’t appear to pose an immediate financial stability risk” wasn’t juxtaposed with any mention of the headlong push for financial deregulation
- Perhaps that’s for a different time or place. Or just because he wanted to cement the case for being an unrepentant dove