Minneapolis Federal Reserve President Neel Kashkari said Wednesday that the Fed needs to start raising interest rates now, arguing that waiting risks a more serious inflation problem that would require sharper increases down the road.
Kashkari spoke in a live interview on CNBC's Squawk Box from the Aspen Ideas Festival in Colorado. He was one of three dissenters at last week's Federal Open Market Committee meeting, where he and two others wanted a quarter percentage point rate hike. The remaining nine voters chose to hold the benchmark funds rate in a range between 3.5% and 3.75%.
The three dissenting votes were the first during Chairman Kevin Warsh's tenure. Kashkari said Warsh did not pressure him on his vote. "He said to me, 'Do what you think is the right thing to do for the economy.' And I said, 'I really appreciate that,'" Kashkari said.
Kashkari pointed to what he described as strong economic conditions as the basis for his concern about current policy.
"Corporate earnings are through the roof. They're doing great. The consumer is hanging in there. The labor market is hanging in there. I look at this constellation and I say, what evidence do I have that monetary policy is particularly restrictive right now?" he told CNBC's Andrew Ross Sorkin.
He said he wants to act before inflation becomes more deeply entrenched.
"I'm not calling for a dramatic increase in interest rates," he said. "I'm simply saying I don't see evidence of monetary policy [being] marginally restrictive right now, and I think we have more work to do to get inflation back down. And I would rather get going now in small steps than wait till later, then we have a really entrenched inflation problem and have to raise rates aggressively."
Kashkari said he does not know what the committee will do at its September 15-16 meeting and said incoming data will be the deciding factor. Markets are pricing in a slight lean toward a rate hike in September, with a better chance assigned to October.
His remarks stand in contrast to those made a day earlier by Philadelphia Fed President Anna Paulson, who also holds a vote on the FOMC this year. Paulson told CNBC she believes current interest rate levels are already mildly restrictive and that holding steady was not a close call for her at last week's meeting.
The FOMC has held rates steady all year. Inflation data in June showed some improvement after tensions eased temporarily in the Middle East and oil prices pulled back, but Kashkari said he remains uneasy and pointed to a series of supply shocks continuing to pressure consumers. The Fed's 2% inflation target remains out of reach.
"So, I argued now is the time to start slowly moving up as we get more data in," he said.
