U.S. Markets

Fed's Kashkari unsure if tax cuts will lift investment

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) - The “best hope” for the impact of the Trump administration’s $1.5 trillion tax overhaul on the U.S. economy is that it boosts investment and thus productivity, Minneapolis Federal Reserve Bank President Neel Kashkari said on Wednesday.

But whether it will do so and deliver faster economic growth in the process is unclear, he said at a dinner hosted by Bloomberg News and broadcast on the regional Fed bank’s website.

“There’s a lot of maybes hopes and wishes between here and there,” Kashkari said, adding that companies had plenty of access to credit before the tax cut to fund their investments.

“I’m not sure it’s going to lead to a dramatic change in investment. ... I hope it does, that would be good for the economy as a whole,” he said.

The Fed is widely expected to raise interest rates three times this year, starting next month. Kashkari last year dissented at every Fed rate hike.

Though he does not vote on Fed policy this year, he said on Wednesday that he would rather wait on further hikes until there is a definitive increase in inflation toward the Fed’s 2 percent goal.

“Let’s pay attention and let’s be patient,” he said of inflation and inflation expectations, saying that if price rises accelerated the Fed would act to contain them. But until then, Kashkari said the Fed should keep rates low to squeeze more slack out of the labor market.

“There could be another million” Americans who could reenter the labor market, he said. Kashkari said he is watching for stronger wage increases as a sign of a tightening labor market.

A report earlier this month of a 2.9 percent increase in hourly wages in January rekindled expectations in financial markets for a bit more inflation and a possible faster pace of Fed rate hikes, but Kashkari said he was looking for more than one month’s worth of data on which to base decisions.

Reporting by Ann Saphir; Editing by Sandra Maler and Leslie Adler