
Why I Dissented - Mz
https://medium.com/@neelkashkari/5f0fdc48440a
======
skywhopper
Glad to hear that someone on the Fed has some sense. The confusion of "target"
with "ceiling" has been disastrous for the economic recovery. Raising rates
now is a terrible idea. Moderate inflation is good for an economy based on
credit, _especially_ so when so many individuals are overburdened by
overwhelming student loan debt and underwater mortgages. Running under 2% core
inflation for the past nine years has destroyed any chance of wage growth or
natural debt relief. If anything, we need a few years of 3-4% inflation to
make up lost time. Wages need to go up and relative debt loads need to go
down, but they never will at 1% inflation when the Fed tightens the screws
anytime we get close to 2%.

~~~
patrickg_zill
What is the source of your view, that supports your pro inflation statements?

I have heard this argument before, but only get arguments from authority when
I ask for actual data that shows this.

~~~
aidenn0
On a microeconomic scale, at least, it should be self-evident that higher
inflation benefits debtors, and hurts creditors:

If I owe you $100, and a dollar becomes worth less, I'm better off (since I'm
paying you back in dollars that have less real value than what I borrowed).

There is a macroeconomic argument that a predictable and modest inflation rate
is good for the economy. Some of the points are:

1) If both parties can accurately predict future inflation, it becomes much
easier to negotiate an interest rate for borrowing; if there is much
uncertainty about future inflation, then there is extra currency risk added to
both the borrower and lender.

2) In the case of deflation, investors will be very cautious, since they
become more wealthy just by holding cash.

3) In the case of very high inflation, currency becomes useless as a store of
value, so people will rush to convert their currency to something less
inflationary.

So if you think that currency should be a useful store of value, that we
should encourage those with wealth to invest it in possibly risky endeavors
and you want to encourage free-flow of credit by removing some of the risks
involved, then those 3 points will be pro modest inflation.

There are of course counterarguments:

A) Free flow of credit has downsides as well as upsides; in particular
households with lower net worth have less ability to absorb economic
downturns.

B) Forcing wealthy people to invest to preserve their wealth by taking risky
investments can create bubbles

C) B+1 means that the bubbles can become highly leveraged.

------
pdog
I don't agree with the premise (that the dual mandate set by Congress of
maximum employment and 2% inflation should be the overarching goal of the Fed)
or the conclusion (that the Fed should wait on raising interest rates), but I
appreciate the transparency and attention to detail of Mr. Kashkari's
analysis. More public officials should publish the reasoning behind their
decisions.

~~~
tradersam
> that the Fed should wait on raising interest rates

I don't agree either. If the economy tanks again, there is almost nothing that
can be done, being that one of the usual steps is to lower interest rates to
spur growth.

~~~
autokad
they could always use quantitative easing.

the argument "we need to raise rates so we can lower them if the economy
tanks" doesn't fit well with me. its sort of like saying lets take poison so
that if we get sick we can stop taking poison and feel better.

it might hold some water if there was inflation, but there's not. deflation is
still a bigger risk.

I think the fed should use interest rates to fight inflation, and QE to fight
unemployment.

~~~
u801e
> it might hold some water if there was inflation, but there's not. deflation
> is still a bigger risk.

I've always wondered if the worry about deflation is overblown. We still have
a lot of things that people and businesses buy that have inelastic demand
which will not change regardless of whether or not we are experiencing
deflation.

Also, when looking at expenses related to computer hardware, it has been going
down relative to its capability. That hasn't led to a delay in purchases from
either consumers or businesses from what I understand.

~~~
grigjd3
Under deflation, there is decreasing motivation to work or produce. Why buy
seeds to grow food when your money could just buy more later? A little
inflation motivates people to produce, either by labor, investment or both.

~~~
fauigerzigerk
_> Under deflation, there is decreasing motivation to work or produce_

Is that only a bad thing? If we have overcapacities and therefore prices fall
then producing less would be the rational thing to do. I do understand that
this has negative consequences as well though.

------
lend000
Like unemployment, inflation measures seem to be significantly under-
represented in the government's working data. Of course, inflation can _never_
be perfectly measured, even against the cost of commodities, since that
assumes commodities are of constant value. This is simply not true -- although
values may not change as quickly as new products, almost every commodity is
slightly less valuable than it was ten years ago due to marginal improvements
in operations, supply-chain, and production technology.

And then you have the impact of oil, whose volatility is derived from
difficult-to-predict geopolitics and abundance, making it useless as a short-
term inflation indicator and even more useless as a very long term indicator,
and yet we heavily rely on it regardless. Might as well include Bitcoin while
we're at it. Not to mention the absence of real estate / college tuition /
credit card debt in these measurements. Here's an interesting look at some
cost comparisons, showing just how difficult it is to capture inflation using
a CPI or even PCE approach.

[http://www.mybudget360.com/cost-of-living-
compare-1975-2015-...](http://www.mybudget360.com/cost-of-living-
compare-1975-2015-inflation-price-changes-history/)

While the author is concerned with meeting his distorted inflation metric on
paper before raising rates, there's another reason to keep rates low: the cost
of debt is about to rise for the world's largest debtor, and the payment is
going to further add to its deficit. If the Fed is only concerned with the
short-term problems of the US economy, like it usually is, then it should
probably never raise rates.

------
rodionos
Take a look at the chart titled "Market-Based Inflation Expectations". What's
the rationale for selecting the 19% and 24% percentiles. I assume these are
percentiles of all values of the underlying metric recorded throughout the
week. If that's the case, why does the subtitle says 'Weekly AVERAGES'?

------
rodionos
FWIW, the US Fed is the only major central bank in the world that is
substantially privately owned. All of its federal reserve banks are owned and
governed by private shareholders. The implicit interests of these stakeholders
can be considered as the 3rd mandate, even though it is not encoded in
legislation.

------
boulos
I feel like there's an important missing statement: the next meeting of the
FOMC is on May 2 [1], so waiting to see if inflation or wages really pick up
would not have been a big deal. Most people are arguing we need to raise rates
now, but I don't see the argument versus six weeks from now.

[1]
[https://www.federalreserve.gov/monetarypolicy/fomccalendars....](https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm)

------
tootie
Kashkari is a chump and my read of this is that he's sucking up the Trump
administration who has been critical of the Fed for holding back growth to
further his own political aspirations.

[http://www.rollingstone.com/politics/news/bailout-
architect-...](http://www.rollingstone.com/politics/news/bailout-architect-
runs-for-california-governor-world-laughs-20140124)

~~~
alvern
That RS article is kinda gossipy garbage, the WaPo article that was written
about him in 2009 does a better job illuminating Kashkari.

[http://www.washingtonpost.com/wp-
dyn/content/article/2009/12...](http://www.washingtonpost.com/wp-
dyn/content/article/2009/12/04/AR2009120402016.html?sid=ST2009120402037)

------
squozzer
It bothers me a little that economists might lack the ability to factor in
changing consumer or business habits that are emerging because of recent
events or secular trends.

For example:

>One additional consideration that I think about is the possibility that low
rates are scaring people and causing them to save more and invest less, while
conventional wisdom is that low rates should lead to more investment and less
saving.

I will say that even when times are good, but can no longer be assured, people
will save more. Moreover, when the costs of economic vulnerability have never
been higher, the spending habits of the past no longer work.

Many of us are one pink slip away from permanent unemployment,
underemployment, and financial ruin.

Many of us are one chronic - not necessarily life-threatening - illness away
from peonage.

It seems unrealistic to expect people to behave as if it's 1957 or even 1987.
Jobs for everyone or the threat of nuclear war probably spurred a bit more
"live for today" mentality than what we might experience today.

------
jboydyhacker
The author operates from the assumption that keeping rates low is stimulative.
While true in many and most circustamnces, the Fed took rates to zero on an
emergency basis in the 2007-2009 crisis. While originally stimulative over
time the evidence that zero rates are providing stimulus is weak in fact it's
likely that the harm it does to pensioners, savers and others dependent on the
debt markets is not only anti stimulative- it may set us up for a new crisis.
In short, the piece is done by someone with no econoic training and super
prone to grandstanding and the piece feels exactly like that.

~~~
obstinate
The author is the President of the Minneapolis Federal Reserve.

~~~
jboydyhacker
That's a political appointment- he has zero training in economic theory. He's
an ex Goldman lackey that screwed up the financial bailout, tried to run for
political office in California then failed and knows about as much about econ
as my grandma. President of the a FRB doesn't mean you are trained in economic
theory- it's a poltiical appointment period.

------
daenney
Would someone mind to provide a bit more context around what this is about?
I'm feeling rather lost reading this.

~~~
drubenstein
Kashkari was the lone dissenter in the most recent FOMC meeting, which
determines the US Federal Funds Rate.

A decent intro (<25 pages) to US monetary policy (I read it during intro
macro), if you're interested:
[http://www.frbsf.org/education/files/MonetaryPolicy.pdf](http://www.frbsf.org/education/files/MonetaryPolicy.pdf)

------
Kenji
Wow, real dissent right here. Central banker votes a bit different on interest
rates. It has zero consequences for him. Do you know what would be real
dissent? Scrapping fiat money and going back to money that cannot be created
out of thin air, proper money.

~~~
generj
All money is fiat money. I have no more inherent reason to accept an ounce of
gold for my sandwich than a $20 bill. The only value the gold has for me is
the expected value others place upon it, which is also the only value I have
for a $20 bill. Gold is only useful if we think it is useful. As an industrial
metal, it would have nowhere near the present value. Historically discoveries
of gold caused the value of currencies to fluctuate dramatically.

People have rose-colored glasses with gold and silver backed currencies, but
they were a factor in the Great Depression and directly responsible for
several severe recessions and panics.

The gold standard of Bretton Woods also never had enough gold to back it up.
It was a fiction the world kindly played along with the US on.

~~~
Kenji
>All money is fiat money.

That's where you started being wrong in your post.

~~~
generj
How so? It's a slight exaggeration, but fundamentally correct. Commodity
monies would hardly be worth anything without their additional value as a
medium of exchange.

------
awherhetheht
With HTTPS-Everywhere the math symbols don't load because the library has a
[http://](http://) link that should be changed to an [https://](https://)
links

Blocked loading mixed active content
"[http://cdn.mathjax.org/mathjax/latest/MathJax.js](http://cdn.mathjax.org/mathjax/latest/MathJax.js)

------
chad_strategic
The premise that government should dictate the interest rates and not let the
market determine rates through price discovery is absurd. 100 of Phd's
couldn't predict the housing bubble and the financial crisis of 08 and if you
think we are safe from that again, good luck.

[http://amzn.to/2mGM5hA](http://amzn.to/2mGM5hA)

~~~
chad_strategic
I'm starting to take great pride in getting downvoted here at "hack" news.
There seems be a group think here on this site, in addition to people just
commenting on things they have no knowledge about especially when it comes to
economics.

I guess I'm just blessed with not running with herd.

The affiliated link, that was my bad. But money is fiat...

~~~
generj
There's also a lot of people who think they have a little bit of knowledge
when it comes to economics. That's usually much more dangerous than knowing
nothing at all about the subject.

Markets do set interest rates on assets. The interest rate is just the rate of
loans the Fed offers to banks. The markets have decided to use this rate as
the basis for the loans they offer without coercion from the Fed or the
government.

