A response to Kashkari’s dissent at FOMC

The Federal Reserve Open Market Committee (FOMC) increased the Federal Funds rate by 25 basis points in June and still kept room for gradual increases. It made light of the fact that the inflation rate has been rather slow to rise. Nor have wages picked up. That is an amazing battle between the factors of production in which a central bank takes sides!

When wages rise, central banks tighten. Wages are costs and they feed through to prices. Therefore, it must be stopped. But, when asset prices rise, capitalists benefits and no rate increases! Why interfere? Of course, there is all about enterprise risk whereas labour can relocate if the enterprise fails. But, perhaps, it made sense in a world of unlimited partnerships and sole proprietors. In a world of limited liability, should labour and capital be treated differently, especially by a central bank?

In any case, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis dissented against the rate increase and explained his stance in a lengthy post in Medium.com. My friend Praveen sent it to me.

We had some email exchanges. The emails I sent him formed the basis of my response to Neel Kashkari’s dissent. I have explained why I think he was wrong to dissent. You can read it here.

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