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U.S. Fed official urges pause on rate hikes with inflation under control

Source: Xinhua| 2018-12-01 03:41:10|Editor: Mu Xuequan
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WASHINGTON, Nov. 30 (Xinhua) -- A senior U.S. Federal Reserve official said on Friday that the Fed should pause on interest rate hikes as inflation remains under control.

"If the U.S. economy is creating 200,000 jobs a month, month-after-month, we're not at maximum employment," Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told CNBC.

"We keep thinking we're at maximum employment. And then wage growth is tepid. And the headline unemployment rate drops further. Inflation has been well under control," Kashkari said, adding inflation expectations are also "so anchored".

The Fed official believed that the central bank should pause on rate increases at this point, as U.S. short-term interest rates are "close to neutral".

Kashkari said he was "more worried" about that the Fed raises rates "prematurely" when the job market "has slack" and the wage growth hasn't picked up yet.

Hiking too forcefully before necessary could risk causing a recession in the U.S. economy, he warned.

Kashkari's remarks came after Fed Chairman Jerome Powell said on Wednesday that interest rates are "just below" the broad range of estimates of the level that would be neutral for the economy.

Market participants interpreted that as a dovish signal for future rate hikes, compared with Powell's previous remarks in early October that rates were "a long way" from neutral, a level neither stimulative nor restrictive to the economy.

But some Wall Street economists and analysts said that they did not see a major shift in Fed's tightening monetary policy.

The Fed is poised to raise rates again at its next policy meeting in mid-December and to continue raising rates next year, according to the minutes of the Fed's most recent meeting released on Thursday.

"Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations," the minutes said.

Tim Duy, a veteran Fed watcher and professor of economics at the University of Oregon, believed that the Fed remains likely to hike in December, but there's a lot of uncertainty about the pace of rate hikes next year.

"There is a lot of data to come between now and March, the most likely next opportunity for a rate hike. It could be soft enough to justify a pause as early as that meeting," Duy wrote in a blog post on Thursday.

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