Feds Kashkari wants plan on balance sheet before any more rate hikes

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Minneapolis Federal Reserve Bank President Neel Kashkari, the lone dissenter against the U.S. central bank's decision this week to raise interest rates, said on Friday the U.S. economy is still falling short on employment and inflation. Even after the data support tightening, Kashkari said in a statement, the Fed should wait on raising interest rates until it publishes a detailed plan for how and when it will reduce its $4.5 trillion balance sheet. "The announcement of our balance sheet plan could trigger somewhat tighter monetary conditions," Kashkari said, resulting in the equivalent of a rate hike of unknown size. "After it has been published and the market response is understood, we can return to using the federal funds rate as our primary policy tool, with the balance sheet normalization under way in the background."

Kashkari's approach appears to differ sharply from the one embraced by Fed Chair Janet Yellen and the majority of her fellow policymakers, who want to wait on any reductions in the balance sheet until they have lifted rates well away from zero. The Fed this week raised its target range for the federal funds rate to 0.75 percent to 1 percent, and Yellen said that while policymakers had discussed what to do about the balance sheet, they had come to no decisions.

The Fed built its portfolio over years of bond-buying in an effort to stimulate hiring and investment when interest rates were already at rock-bottom. It says the system is still working to keep longer-term borrowing costs lower than they otherwise would be.

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