Wall Street will comb the Fed's June minutes for the answer to one key question

Does Neel Kashkari have any friends at the Fed?

Put more diplomatically: Does the Minneapolis Fed president have any dovish allies on the Federal Reserve’s Open Market Committee who are sceptical of further interest rate increases or is he all alone in dissenting against more hikes this year?

That’s the main question investors will be looking to answer as they rifle through minutes from the central bank’s June meeting, due out Wednesday at 2 p.m. ET.

As US inflation edges further below the Federal Reserve’s elusive 2% target, which it has missed for the bulk of the eight-year economic recovery, Wall Street analysts wonder just how much weakness officials might have to see to rethink their monetary tightening plans.

Key to this calculus is whether Kashkari, who worries the Fed is compromising additional job growth needlessly given inflation remains stubbornly below the central bank’s goal, can win over any allies.

His reasoning is sound: “We don’t yet know if that drop in inflation is transitory,” he said in a post justifying his dissent.

Given all the hawkish talk from the central bank lately, Kashkari may continue to be quietly ignored by his FOMC peers. Fed Chair Janet Yellen herself has indicated a high hurdle to knock the Fed off its tightening path, while other policymakers say they are worried the unemployment rate might fall too quickly — whatever that means.

Some background on the Fed’s hawk-dove spectrum is in instructive. Economists rank officials according to their tolerance for inflation. Those willing to accept a little more of it to try to boost employment further are called doves; those who tend to think policy is likely helpless to much more are dubbed hawks.

However, it’s telling that the hawk-dove divide, which shifts over time and with the economy’s path, is defined by only the inflation side of the Fed’s dual mandate, not its other goal of maximum employment.

Where are the employment hawks? Kashkari is as close as it gets. Importantly, job growth has slowed in the last few months, to a monthly pace of just 121,000 per month in the last three months.

He’s not totally alone, however. While once-dovish officials like Boston Fed President Eric Rosengren and Chicago Fed President Charles Evans have changed their minds of late, others seem more in tune with Kashkari.

Philadelphia Fed President Patrick Harker said on June 27 the central bank might have to reconsider its rate hike plans if inflation keeps falling.

“My forecast is for the ceasing of reinvestment [of bond profits] this year and possibly one more rate increase, but if we start to see inflation continue to deteriorate … then I would revisit that. We have to be open to that,” said Harker, who like Kashkari is a voting member on the FOMC this year.

Outside the central bank, a growing chorus of prominent economists is also calling for the Fed to explore new ways to stimulate economic growth given shifting global conditions. One idea is to raise the inflation target in a way that would allow the central bank to be more aggressive in future recessions.

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