Former Goldmanite and current Minneapolis Fed president, Neel Kashkari, conducted another #AskNeel session on Twitter where the dovish FOMC voter (he was the only one to dissent in last week's rate hike decision) received numerous question. Among them was the following one from Zero Hedge:
.@neelkashkari You recently admitted the Fed has a "third mandate." What is the biggest S&P drop the Fed will accept before intervening?
— zerohedge (@zerohedge) March 21, 2017
His response:
Don't care about stock market fall itself. Care abt potential financial instability. Stock market drop unlikely to trigger crisis. #AskNeel https://t.co/Cv7ENuJuqU
— Neel Kashkari (@neelkashkari) March 21, 2017
At this point we would like to "timestamp" Kashkari's claim that a "stock market drop is unlikely to trigger a crisis"
It was not clear just how the Fed president separates a market crash from "financial instability", but Kashkari's response that the Fed is not concerned about the level of the S&P500, and instead is more focused on comprehensive market stability, is not being taken well by the market which has continued to sell off as Kashkari responds to further questions, among which the following exchanges:
In response to a question about rising inflation, Kashkari said he would tolerate 2.3% inflation for as long as U.S. has had below-target inflation, “if we really believe 2% is a target. That is what a target means" and adds that “Not sure if my colleagues wld really buy into that however." We wonder how that question would look like if instead 2.3% inflation one used 3.6%, which is the current true level of inflation according to PriceStats. At least the Fed has been polite enough to advise America it will tolerate a material "overshoot" in its inflation target.
When asked about the two latest rate increases, he said that “data didn’t support a hike. Data basically hasn’t changed. Moving sideways rather than toward dual mandate.”
He also said that he would like to see plan on balance sheet normalization soon, adding: “I would prefer to see it before we increase the federal funds rate again” and added that the balance sheet “needs to grow as economy and demand for dollars grows. We will shrink but not to 2006 levels.”
In shor, Kashkarhi - who allegedly does not care about the level of the S&P500 - is willing to risk a market crash and a Fed balance sheet-driven bond tantrum. Or, to paraphrase Richard Breslow, "The Fed Is Making This Up As They Go Along""