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Kashkari: 'No reason' to have interest rates that restrain the economy

Minneapolis Federal Reserve President Neel Kashkari continued to stake out one of the most dovish positions among U.S. central bankers in remarks he made Sept. 26.

"There's no reason we should have interest rates trying to hold the economy back," he said, speaking at a town hall in Billings, Mont. Kashkari recounted his opposition to the rate increases the Fed implemented through late 2018 as well as his arguments that cuts in July and September should have been steeper.

"I see no evidence that the U.S. economy is running at capacity or beyond capacity," he said. He also said that "warning lights are flashing" in the form of an inverted yield curve.

Kashkari will join the Federal Open Market Committee as a voting member in 2020. He recently said that the central bank's policy target should be 50 basis points lower than it is today.

Fed officials have been split on the correct path for monetary policy, with two voting members of the FOMC dissenting against the cut in September in favor of unchanged rates and one dissenting in favor of a bigger reduction.

Speaking at an event on Sept. 25 in Texas, Dallas Fed President Robert Kaplan — who will also become a voting member on the policy committee in 2020 — said that he is "agnostic" about the need for further rate cuts, according to Reuters.

Kaplan said the U.S. could "skate through" a delicate period without a recession if consumer spending stays strong, the news service reported. He said policymakers are watching to see whether a deceleration in global growth and weakness in manufacturing and business investment translate into slower hiring and a blow to consumer confidence.

Kaplan has consistently signaled a middle-of-the-road stance as the central bank has lowered rates, emphasizing an openness to evaluating new economic data as it emerges. Kaplan said he supported both of the Fed's two 25-basis-point cuts so far, Reuters reported.

At his appearance, Kashkari also downplayed the notion that liquidity and capital rules imposed since the financial crisis are to blame for recent disruptions in the wholesale market for overnight funds.

He said the new rules may have played a role and that regulators and market participants are still "learning exactly what the implications of the rules are." But he argued that the rules are essentially sound and are designed to make banks safer and prevent taxpayer-funded bailouts.

"The bottom line is: I don't see this as a big a problem," he said. "Banks need to plan for their own liquidity needs. If they had to pay slightly higher interest rates to meet their liquidity needs, so be it."