Fed’s confident Kashkari inflation may moderate, but not without pain

Minneapolis Federal Reserve Chairman Neel Kashkari said Monday he was confident inflation would return to normal, although he added it would take longer than expected.

He acknowledged that he was part of “Team Transitory” in the belief that rising prices would not last and said persistent imbalances between supply and demand had produced the highest rates of inflation in more than 40 years.

While the Fed’s monetary policy tools can help dampen demand, they can’t do much to sustain supply.

“I am confident that we will bring inflation back to our 2% target,” he said in a live interview with CNBC’s Squawk Box. “But I’m not sure yet how much of that burden we’ll have to carry instead of getting help from the supply side.”

Neel Kashkari

Anjali Sundaram | CNBC

His comments come less than a week after the Federal Open Market Committee hiked interest rates by half a percentage point. The 50 basis point hike was the largest hike in 22 years and sets the stage for a series of similarly sized moves in the coming months.

Although Kashkari has favored lower interest rates and looser monetary policy in the past, he voted for the two increases this year as it is needed to control rising prices. However, he noted that the burden of tighter policies will fall on those at the bottom of the wage spectrum.

“It’s the lowest-income Americans who are most penalized by these rising prices, and yet your policy tools to curb inflation are most directly affecting the lowest-income Americans as well, either by increasing the cost of a Mortgage… or if we have to do so much to put the economy into recession,” he said. “It’s their jobs that are most likely at risk.

“I think this is a difficult challenge for all of us, but we also know that leaving inflation at these very high levels is not good for anyone and it is not good for the long-term potential of the economy for anyone in the world overall income distribution,” he added.

On Wednesday the government will release its latest consumer price data, followed by April producer prices on Thursday.

Economists expect the pace of inflation to ease somewhat in April, with headline consumer price indexes projected to have risen 8.1% over the past year, and 6% excluding food and energy, according to Dow Jones estimates. This contrasts with the respective increases in March of 8.5% and 6.5%.

Such figures give Kashkari some comfort, although he said conditions will remain difficult as long as supply and demand imbalances persist.

“We just have to keep paying attention to the data,” he said. “Some of the more recent inflation data is, by some standards, a bit softer than we thought. So maybe there are hints that things are softening by a hair. But we just have to keep looking at the data and see where it comes out before we can draw any conclusions.”

https://www.cnbc.com/2022/05/09/feds-kashkari-confident-inflation-can-weaken-but-not-without-pain.html Fed’s confident Kashkari inflation may moderate, but not without pain

Jane Marczewski

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