Fed's Kashkari: U.S. economy needs lower interest rates

WASHINGTON (Reuters) - The Federal Reserve should lower interest rates further because the U.S. economy has not yet fully reached its potential, Minneapolis Federal Reserve Bank President Neel Kashkari said on Thursday.

"I argued for steeper interest rate cuts just because I see no evidence that the U.S. economy is running at capacity or beyond capacity. There's no reason we should have interest rates trying to hold the economy back," Kashkari said during an event at Montana State University Billings in reference to the Fed's policy meeting last week.

At that meeting, Fed policymakers lowered borrowing costs to a range of 1.75% to 2.00%, but Kashkari said earlier this week that he believes rates should be half a percentage point lower.

The Fed has been periodically raising interest rates since late 2015 due to a strengthening economy but reversed course in July, citing the increasing impact of slowing global growth, U.S. trade tensions and moderate inflation.

Kashkari does not have a vote on monetary policy this year but takes part in the central bank's deliberations. He will have a vote next year as part of the Fed's rotation system.

Both he and St. Louis Fed President James Bullard have been the most fervent in pushing for lower interest rates at the Fed, seeing the economy in a weaker state than almost all of their fellow policymakers.

At Thursday's event, Kashkari also warned again that an inverted yield curve is the best predictor of recession. Asked about whether negative interest rates could occur in the United States, he said he could not rule it out.

"Could I envisage a series of events that would lead us to have negative interest rates? I do, I could. It's not my base case, it's not even my second or third case, but the fact is that it's so pervasive around the world," he said.

(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama)

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