Federal Reserve Bank of Minneapolis President Neel Kashkari said the central bank is committed to doing what’s necessary to bring down demand in order to reach policy makers’ 2% long-term inflation goal, a target that remains far off.
“We are committed to bringing inflation down and we’re going to do what we need to do,” he told CBS’s “Face the Nation” in an interview on Sunday. “We are a long way away from achieving an economy that is back at 2% inflation, and that’s where we need to get to.”
Inflation that has continued to exceed the Fed’s expectations is “very concerning,” Kashkari said. Faster cost-of-living increases are becoming more broad-based and aren’t limited to just a few categories, and that explains why the Fed is “acting with such urgency to get it under control and bring it back down,” Kashkari said.
Kashkari does not vote on monetary policy this year.
Fed officials raised interest rates by 75 basis points last week for the second straight month — delivering the most aggressive back-to-back increase in more than a generation to tame inflation at a 40-year high.
Chair Jerome Powell told reporters after the July 27 decision that officials could do the same again at their next meeting in September — depending on readings from the economy between now and then — while pushing back on suggestions that the U.S. is already in a recession.
Faster inflation is being driven by supply chains disrupted by the war in Ukraine and other factors, Kashkari said, adding that while wages are increasing, they’re not keeping pace with surging goods prices. So for most Americans, “real incomes are going down,” and there’s no “self-fulfilling spiral” of wage-driven inflation yet, he said.
“Families are finding it increasingly hard to make ends meet,” said Kashkari, who served in a key financial stability post at the Treasury Department during the 2008-2009 global crisis. “When they go to the grocery store, when they buy necessities, they’re not able to buy as much because they’re getting a real wage cut.”
Data since the Fed decision last week showed U.S. gross domestic product contracting for the second consecutive quarter between April and June, meeting the threshold that some economists use as a rule-of-thumb to judge a recession.
The National Bureau of Economic Research’s business cycle dating committee — the official arbiter of U.S. recessions — does not accept this view. Instead, the group of eight elite academic economists looks at half a dozen monthly economic reports to see a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Kashkari said the Fed will do everything it can to avoid a recession, while acknowledging that it doesn’t have a “great record” of being able to do so.
“Whether we are technically in a recession or not doesn’t change my analysis,” Kashkari said. “I’m focused on the inflation data. I’m focused on wage data. And so far, inflation continues to surprise us to the upside. Wages continue to grow. So far, the labor market is very, very strong.”
Kashkari said he doesn’t expect the Democrats’ new tax, climate and drugs bill to have much impact on inflation in the next couple of years.
“Long term it may have some effect, but over the near term, we have an acute mismatch between demand and supply,” Kashkari said. “And it’s really up to the Federal Reserve to be able to bring that demand down.”
Kashkari said that while he’s hearing from multinational companies that they’re making progress in resolving global supply chain bottlenecks, “it’s taking a lot longer than they thought, and than I thought.”
“That means we cannot wait until supply fully heals, we have to do our part with monetary policy,” he said.