(Reuters) – Minneapolis Fed President Neel Kashkari said Thursday that the rate reductions made by the Federal Reserve last year helped reduce the recession risks linked to weak business investment and geopolitical tensions and that he expects interest rates to be on hold for the foreseeable future.
An improvement in trade tensions and progress in tariff negotiations with China could increase optimism and encourage businesses to invest, Kashkari said in an interview with Fox Business.
“We can say at the moment that trade tensions with China don’t seem to be increasing, so that’s a positive. I think that can translate into more business investment,” he said. “I would also say the Federal Reserve having cut interest rates has taken some of the recession risk off the table.”
The Fed official, who became a voting member for the central bank’s monetary policy decisions this year, said he expects rates to remain steady for the next six months to a year, which could help to lift inflation.
Kashkari said he thinks the central bank has fallen short of its 2% inflation target because officials tend to raise interest rates when they anticipate higher inflation – before substantial price increases materialize.
“We think inflation is around the corner and then inflation doesn’t come because we raise rates prematurely,” he said. “Now that we’re in a pause mode I think we’re in a much better position.”
He said he would support more accommodative monetary policy if inflation continues to weaken or if inflation expectations slide.
(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama)