February 7, 2017 / 3:44 PM / 3 years ago

Fed's Kashkari says accommodative policy is appropriate

FILE PHOTO - California Republican gubernatorial primary candidate Neel Kashkari speaks on stage during the California Republican Party Spring Convention in Burlingame, California, U.S. on March 16, 2014 REUTERS/Stephen Lam/File Photo

(Reuters) - With the U.S. economy not yet at full employment, little risk of inflation surging and no immediate threat to financial stability, the Federal Reserve should keep rates moderately accommodative, Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday.

“If we are to err, it is better to err on the side of being more accommodative than being more restrictive,” Kashkari said in a statement released to explain his rationale for voting with all his Fed colleagues last week to keep U.S. interest rates steady.

Kashkari said that while markets are pricing in expectations for fiscal stimulus under President Donald Trump, he is not doing so in his own economic forecasts.

“Financial markets are good at some things, but, in my view, notoriously bad at forecasting political outcomes,” Kashkari said.

Inflation is showing signs of rising only slowly, labor cost growth is weak, and low inflation in other developed countries around the world make it unlikely that inflation will surge at home, he said.

The Fed currently targets short-term interest rates at between 0.5 percent and 0.75 percent, delivering a moderate level of accommodation, he said, adding, “This level of accommodation seems appropriate today given where we are relative to our dual mandate.”

Reporting by Ann Saphir; Editing by Chizu Nomiyama

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