“If we base our outlook for inflation on these actual data, we shouldn’t have raised rates this week,” Kashkari, who votes this year on the policy-setting Federal Open Market Committee, said Friday in an essay published on the Minneapolis Fed’s website.
The Man Who Ran the Bank Bailout Is the Fed’s Toughest Internal Critic A widely-tracked measure of the underlying inflation trend that excludes volatile food and energy prices declined to 1.7 percent last month, according to data released Wednesday by the Labor Department in Washington.
The report marked a third straight month of surprise declines.
Fed Chair Janet Yellen said during a press conference to explain the FOMC decision to raise rates later in the day that “it’s important not to overreact to a few readings, and data on inflation can be noisy.” Yellen also cited a low unemployment rate as justification for the rate increase, referring to a relationship between the labor market and price pressures known as the Phillips curve, which she said “remains at work.” “The outcome that the current FOMC is so focused on avoiding, high inflation of the 1970s, may actually be leading us to repeat some of the same mistakes the FOMC made in the 1970s: a faith-based belief in the Phillips curve and an underappreciation of the role of expectations,” Kashkari said.
Today, that same faith may be leading the committee to repeatedly (and erroneously) forecast increasing inflation, resulting in us raising rates too quickly and continuing to undershoot our inflation target,” he said.