9/18, 4:20 PM (Source: TeleTrader)
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Tense labor market allows 2% inflation rate - Fed's Kashkari

Federal Reserve Bank Minneapolis President Neel Kashkari (pictured) expressed support on Friday for the central bank's new statement on long-term goals and monetary policy strategy. In addition, the official said he would have preferred if the Federal Open Market Committee (FOMC) made a stronger commitment not to raise the interest rates too soon.

In his lengthy essay, he explained why "maximum employment" is possible to be achieved when the labor market is tense enough to allow a 2% inflation rate in a balanced environment. "Not raising rates for roughly a year after core inflation first crosses 2% is consistent with a strategy of aiming for a modest overshoot in order to achieve average inflation of 2%," Kashkari pointed out.

He concluded by saying that the FOMC is well equipped to combat high inflation, while low inflation rates might cause bigger problems as many advanced economies have experienced the same problem. Kashkari sees a possible problem developing with the Committee's policy, which could lead to generating higher inflation as an outcome and hence higher rate as a possible response.

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