Fed’s Kashkari says fight against inflation more important as labor market ‘is in good shape’
Neel Kashkari, President and CEO, Federal Reserve Bank of Minneapolis, speaks at the Milken Conference 2024 Global Conference Sessions at The Beverly Hilton in Beverly Hills, California, US, May 7, 2024.
David Swanson | Reuters
Minneapolis Federal Reserve President Neel Kashkari said Thursday that easing the U.S. monetary policy remains his top priority, warning that consumer prices are “still too high.”
Speaking to CNBC’s Kaori Enjoji at the Bank of Japan-IMES Conference, Kashkari said the US central bank will continue to take a “balanced approach” to its dual mandate of price stability and full employment.
Still, he noted that inflation has remained above the Federal Reserve’s 2% target for more than five years, while the labor market is currently in “good shape.”
“I’m very focused on inflation. I’m not ignoring the labor market at all. We need to pay attention to both sides, but the labor market is in good shape right now, while inflation is very high,” he said.
Kashkari added that long-term inflation remains high, the biggest risk is that inflation expectations are not fixed and continue to rise.
“If that were to happen, we would have to respond even harder, so it’s best to do what we need to do to keep inflation expectations grounded.”
Inflation in the US recently stood at 3.8% in April. Excluding food and energy, core CPI increased by 0.4% and 2.8%, respectively.
Kashkari said that global inflationary pressures have been fueled by the Covid-19 pandemic, inflation, the war in Ukraine, and now, the conflicts in Iran.
Asked about the main drivers of the recent inflation, Kashkari said “there is a tailwind from what was left before,” but attributed the current rise to energy and fertilizer prices.
“Those numbers affect other sectors, so one of the things I’ll be looking at is, when do we see electricity prices impacting the broader economy and inflation in the broader economy.”
AI and the Fed
Kashkari was also asked about the impact of artificial intelligence on the Fed’s policy path, saying that if AI leads to sustained higher productivity, higher rates can be sustained as the economy becomes more productive.
However, he also cautioned that the impact is currently difficult to judge and, therefore, will need to be observed to see how AI translates into continued high productivity.
“I talk to businesses all the time, big businesses, especially in America. They all tell me that they use it, they find useful ways to use it to be more productive, or to give them skills they didn’t have before,” he said.
“I’m optimistic about the long-term prospects of AI, but what are the short-term effects of monetary policy, or even the long-term effects? I think it’s too early to know.”
It’s a new era at the Federal Reserve
The comments come as the Fed begins a new chapter under Chairman Kevin Warsh, who succeeded Jerome Powell.
One of Warsh’s long-standing criticisms of the Fed has been its use of forward guidance, including the so-called “dot plot,” which shows anonymous interest rate projections from the central bank’s 19 policymakers.
Kashkari, who said he has known Warsh “for a long time,” welcomed the new discussion on how the Fed communicates with markets and the public.
When asked about his thoughts on this, Kashkari said himself, “I don’t like the fact that I have to fill in the structure of the dots, because the future is uncertain.”
He said other suggested solutions include introducing more economic conditions or producing only spot markets when they are “really trying” to give the market direction.
“Foreward guidance can be a very powerful tool for central banks. There are several times when I really want to bring that guidance,” Kashkari said.
“Most of the time, I prefer not to bring such guidance, just because the future is uncertain, so I think this is an example of a place that is ready for a new discussion of all these options.”
