When an inflation report Wednesday morning turned out to be shockingly low, there seemed little chance Minneapolis Fed President Neel Kashkari would vote with other Fed policymakers to raise interest rates later in the day.
Kashkari's dissent on rates seemed clear in the morning's inflation data
Since January, the Minneapolis Fed leader has repeatedly pointed to low inflation as one reason to keep interest rates steady.
Since taking a voting role on the Fed's rate-setting committee in January, Kashkari has repeatedly pointed to low inflation as one reason to keep interest rates steady. "Right now inflation is going in the wrong direction," Kashkari said three weeks ago.
And there it was Wednesday afternoon in the last sentence of the central bank's statement announcing the latest rate hike: "Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate."
When the Fed last raised rates in March, Kashkari also was the lone member of the 10-person rate-setting committee to vote no. He cited both low inflation and that the Fed's other target, maximum employment, which he said had not been achieved.
Kashkari said three weeks ago the country is getting closer to maximum employment but that he would have more confidence lifting rates if inflation was closer to the Fed's target rate of 2 percent.
The new data from the Labor Department on Wednesday morning put inflation at 1.7 percent. And the Fed in its rate announcement said its preferred measure of underlying inflation has fallen to 1.5 percent from 1.8 percent earlier this year. That means it has now been below the 2 percent target for more than five years.
The Fed's statement said policymakers are "monitoring inflation developments closely."
"Everybody is fixated on the inflation data and it is a little bit of a mystery," Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management in Milwaukee, told Reuters. "But in general, you are at this point in the economic cycle where … qualified workers are hard to find. The textbook says that inflation should rise, the question is if this time is different."
At a news conference after the statement was issued, Fed Chairwoman Janet Yellen said inflation may be less sensitive to gains in employment than it was in the past.
She noted that cellphone service pricing was one of the only factors creating upward pressure on consumer prices, with weakness in nearly all other categories.
Heidi Learner, chief economist at Savills Studley in New York, told Reuters that she would have liked to hear more from Fed officials about the decline in inflation.
"That's probably behind Kashkari's dissent in terms in wanting to keep rates where they were, but they didn't seem terribly worried," she said.
Kashkari did not comment immediately following Wednesday's meeting. In recent months, he has posted essays online with his assessment of the rate decision within a few days of a meeting.
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