/The Fed: Fed dove Kashkari says he’s not expecting a recession

The Fed: Fed dove Kashkari says he’s not expecting a recession


Bloomberg

Minneapolis Fed President Neel Kashkari

Minneapolis Fed President Neel Kashkari, a leading dove in the central bank’s leadership, said Thursday he is worried about the U.S. economic outlook but expects the expansion to continue.

“My base case scenario is not a recession. I still think the U.S. economy is going to grow, but the risks have materially increased to the downside,” Kashkari said, in an interview with Yahoo Finance.

Signs of trouble include the shape of the U.S. Treasury yield curve, which is said is the best recession predictor, “is flashing red,” businesses are pulling back and the labor market appears to be slowing, Kashkari said.

On the positive side, consumers still have jobs and are continuing to spend, he said.

The Minneapolis Fed president said he thought the Fed was likely to cut interest-rates further but did not specify when.

Despite the two quarter percentage point rate cuts since July, the Fed’s benchmark interest rate might still be slightly too high and slowing the economy, he said.

“My best estimate right now is that interest rates are roughly around neutral, maybe slightly contractionary,” Kashkari said.

Minutes of the Fed’s September meeting show that only two Fed officials backed a half-point rate cut. Prior to the meeting, Kashkari had advocated that aggressive step.

Read: Minutes show growing concern at the Fed about the outlook

Investors think the Fed will cut interest rates again at their Oct. 29-30 meeting. The probability of a quarter-point rate cut by the end of October is now about 80%, according to the CME Group’s FedWatch tool.

The Dow Jones Industrial Average

DJIA, +0.64%

 was up 140 points in afternoon trading on optimism over ongoing U.S. -China trade negotiations.

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