The Financial Post reports in its Thursday edition that a U.S. government shutdown or prolonged strike by automotive workers could slow the economy, meaning the Federal Reserve would not have to use its tools to ease price growth, Minneapolis Fed president Neel Kashkari said.
A Bloomberg dispatch to the Post reports that on Wednesday Mr. Kashkari said: "If these downside scenarios hit the U.S. economy, we might then have to do less with our monetary policy to bring inflation back down to two per cent because the government shutdown or the auto strike may slow the economy for us. I'm not hoping for that, but there's an interaction there."
In a letter published Tuesday, Mr. Kashkari -- who votes on monetary policy this year -- outlined two scenarios for the Fed's inflation response. In one, to which he assigned a 60-per-cent chance, the Fed can bring inflation down to its 2-per-cent target without causing severe damage to the economy. In the other, price growth would be more entrenched and require further rate increases to bring price growth under control.
He said, "If our interest-rate increases are not slowing the economy the way that we expect, then there is that risk that we might have to go higher."
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