"If we base our outlook for inflation on these actual data, we shouldn't have raised rates this week", Kashkari said in an essay published on the bank's website.
Editor's Remarks: Alongside the rate hike, the Fed is expected to commence cutting its $4.2trn holding of various securities that it took on following the financial crisis. The Fed not only hiked interest rates, but stated that they are planning one more rate hike this year. Shares fell in Asia on Thursday after the U.S. Federal Reserve raised interest rates, as expect. 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.
"We should have waited to see if the recent drop in inflation is transitory to ensure that we are fulling our inflation mandate" to get inflation back to 2%, Kashkari said. The Fed, he said, may be "erroneously" forecasting an increase in inflation based on tight labor markets, making a mistake that could lock the US economy into lower inflation for longer.
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That has led to some beginning to question the validity of the traditional narrative of a tight labor market eventually sparking higher inflation. The S&P ASX 200 in Australia tumbled 1.2 percent to 5,761.00. It also maintained its forecast of one more rate hike this year and three the next.
The Fed's decision to raise rates, announced in a statement after its latest policy meeting, was approved 8-1, with Neel Kashkari, head of the Fed's Minneapolis regional bank, dissenting in favor of holding rates unchanged. "I am not sounding an alarm bell like, 'Iceberg ahead!'"