Rate hike pause will keep US growth on track: Fed official

WASHINGTON • Federal Reserve Bank of Minneapolis president Neel Kashkari said Fed chairman Jerome Powell is "coming around" to the view to wait until wages and inflation rise before raising interest rates again, and that the Fed's latest pause will help keep a "fundamentally healthy" economy on track.

"There are more people out there who want to work, let's let the economy continue to strengthen and if we see signs then, wages pick up, inflation picks up, we can always tap the brakes," he said on Sunday at an event hosted by the Trinity Lutheran Church in Long Lake, Minnesota. "Let's just not tap the brakes prematurely."

The Minneapolis Fed distributed a recording of the event, which took place on Sunday morning.

"I think we still have room to run in the United States economy," he said. Mr Kashkari is not a voter this year on the policy-setting Federal Open Market Committee.

The committee pivoted decisively last week to a prolonged pause on interest-rate increases, declaring it would be "patient" as it determines future adjustments in borrowing costs that left open the possibility the next move could be a cut.

The policy U-turn, just six weeks after the Fed raised rates and signalled two hikes this year, reflected concern that slower global growth, tighter financial conditions and uncertainty over US-China trade talks and Brexit posed risks to the central bank's positive US economic outlook.

January payroll data released by the Labour Department last Friday showed US employers added the most jobs in almost a year while wage gains remained measured.

Average hourly earnings advanced 0.1 per cent from the prior month, while unemployment rose slightly to 4 per cent, pushed up by the government shutdown.

The Fed aims for maximum sustainable employment with stable prices, which it defines as 2 per cent, according to its preferred gauge. This rose 1.8 per cent in the 12 months through November.

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A version of this article appeared in the print edition of The Straits Times on February 05, 2019, with the headline 'Rate hike pause will keep US growth on track: Fed official'. Print Edition | Subscribe