Continue Reading Below
“I don't think it'd be healthy for us to be chasing the markets,” Kashkari told Maria Bartiromo during an exclusive interview on FOX Business’ “Mornings with Maria,” adding that more data is needed before making any policy shift.
“I think if we are just overreacting to market moves whether it's the bond market or the stock market,” he said, “I think that that's not going to do anybody any good. That's going to add to uncertainty and add to volatility.”
Earlier this week, 10-year Treasury yields dropped below 2.4 percent, flashing a potential recession warning. Kashkari said that although he takes that signal “very seriously,” it’s important to look at why yields are falling.
“I think one interpretation is long-run yields are falling because investors are forecasting slower growth in the future,” he said. “They're certainly not forecasting inflation to take off.”
Kashkari also said that it’s hard to decipher which interest rate represents neutral “that neither stimulates nor restrains the economy.”
“Although I was opposed to the rate increases. I didn't think we had moved to a contractionary stance but we might have,” he said. “And so I'm looking at the yield curve for giving us feedback on where neutral is.”
When Bartiromo asked whether a recession could happen in 2020, Kashkari responded: “It's certainly possible. We don't know for sure.”
“I think the economists call it the unconditional probability. On any given year there's about a 15 percent chance that the next year there would be a recession,” he said. “I think those recession odds are elevated right now based on these signals from the yield curve but it's not my base case.”
Kashari said he expects continued economic growth, but just at a slower pace that what was seen in 2018.