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Kashkari: Fed should focus on wage growth, let inflation 'come to us'

Federal Reserve Bank of Minneapolis President Neel Kashkari said Feb. 28 that Fed policymakers should focus more on trying to eliminate the remaining slack in the labor market, which he said would help push up weak wage growth numbers that U.S. workers have seen since the financial crisis.

Kashkari, who does not vote on monetary policy this year, dissented on all three of the Fed's interest rate hikes during 2017, citing his concerns that inflation has continually undershot the Fed's 2% target.

The unemployment rate is at a 17-year low of 4.1%, but Kashkari said there are still more workers who could return to the labor force. The Fed, he said, should try to push tight labor markets further so that employers feel more pressure to offer higher wages, which could in turn help inflation strengthen.

"We need to let the market work and allow people to find jobs and allow wages to grow," he said at a Hamilton Project event in Washington, D.C. "And businesses are going to do what's in their own self interest, and they're going to pay up when it makes sense. And I think we should let the process continue."

Kashkari also pushed back against those who say that approach could overheat the economy and lead to a rapid rise in inflation. The Fed, he said, can "always raise rates" easily to ward off overly high inflation figures once they start showing up.

"Let's allow the inflation to come to us, reveal itself," he said.