Fed’s Kashkari: Fed already near neutral

In a blog post on Medium, Minneapolis Fed President and traditionally dovish FOMC member Neel Kashkari argued that, given that long-term real rates have the greatest influence on the demand for credit, financial conditions are already nearly back to neutral levels. But Kashkari argued that the Fed still needs to follow through with its forward guidance on rate hikes and balance sheet reduction to ensure that conditions remain neutral.

Kashkari said his assessment of the nominal neutral rate of interest is still that it is around 2.0%. His remarks come after the Fed lifted interest rates by 50 bps in a widely expected move earlier in the week and outlined quantitative tightening plans.