Fed's Kashkari is surprised the 10-year rate hasn't risen more
Fed's Kashkari is surprised the 10-year rate hasn't risen more on the back of the tax cut, big spending bills, and the Fed's balance sheet normalization, he said in a CNBC interview. He is more concerned about the flatter yield curve than the higher rate, and wonders whether the narrowing is a signal that the Fed is not far from neutral. He's not as worried that the curve is signaling recession, but does think it's signaling caution. The long time dove noted wages and prices are finally, albeit slowly, moving higher, with the latter approaching the Fed's target. That raises the question about "where is neutral." He thinks the Fed could be closer to neural (a 2% funds rate) than others believe. In terms of trade and tariffs, he noted his business contacts are concerned and some are already raising prices in case tariffs are levied. But it's uncertain how it will all play out. Though it's mostly just rhetoric currently, there could be an economic pullback if it created a crisis of confidence. Regarding market valuations, he said just because stock prices are high doesn't mean a downturn will lead to a financial crisis. If investors suffer losses, so be it as it's part of free markets. It won't drive Fed policy, though the Fed does want to avoid a financial crises.