"My predecessor and I could not be more different", said Kashkari, who has been an aerospace engineer, a Republican candidate for California governor, and the head of the USA government's bank bailout program in the financial crisis.
The US treasury curve (the difference between two and ten-year treasuries) has flattened five basis points (bp) and at 79bp is eyeing the levels we saw in July 2016. The surprise, however, was the FOMC's announcement regarding its plans to unwind the Fed balance sheet later in 2017 if the economy performs according to its members' expectations. But while many of his colleagues were uncomfortable with risking a surge in inflation if the Fed failed to act, Kashkari was more anxious about the costs of excessively low inflation.
"And even though the Fed admitted that inflation had "declined recently" it doesn't appear too concerned at this stage regarding that trend and still expects inflation to normalize near its 2% target in the medium term, although it is monitoring it "closely"..."
"We expect a "dovish hike" - raising rates but signaling a pause perhaps until year-end - to weigh further on the USA dollar", said analysts at Scotiabank in a research note.
As the FOMC meeting looms later this month, markets are fully prepped for a rate hike despite some underwhelming releases from the U.S. economy. "We have plenty of time as a committee to respond" if inflation does begin to surge, he said.
We still think that the market under-prices the risk of further Fed tightening, but we do need to see some recovery in CPI data before the Fed is likely to move again. "I am not sounding an alarm bell like, 'Iceberg ahead!'"
Minneapolis Fed President Neel Kashkari justified his second dissent on interest rate policy this year, saying he voted against this week's increase in borrowing costs because he doesn't think the economy is strong enough to handle it.