Time for the Fed to Pause
There are more reasons for the Fed to abide by Neel Kashkari’s advice than he articulates in “Pause Interest-Rate Hikes to Help the Labor Force Grow (October 26, 2018).”
Given today’s Federal debt level, the impact of the Fed’s 3.5% target rate on short-term Treasuries would create a total annual interest expense of $700 billion in 2020, equal to the entire deficit today. An expense of this magnitude would impinge on economic growth and reduce needed spending on infrastructure. That's a big price to pay to engage in a preemptive strike against an inflation rate that does not exist yet.
A 3.5% Federal Funds rate would also disincentive bank lending. Parking excess cash risk-free at the Fed window at that rate would arguably be a better use of bank funds than lending into the economy at 5%, a rate the Fed has no control over.
If the Fed continues on its projected path of rate increases, they could saddle the economy with unsustainable debt levels and an old-fashioned credit crunch.