Federal Reserve Bank of Minneapolis President Neel Kashkari expressed a positive outlook on inflation in the United States while acknowledging the potential impact of the central bank’s aggressive monetary tightening campaign. Kashkari’s comments come as recent data indicates a cooling of US inflation from pandemic highs, steady economic growth, and robust consumer spending despite the Federal Reserve’s interest rate hikes to their highest level in over two decades.
Kashkari appeared on CBS’s Face the Nation, highlighting the resilience of the US economy, stating that the base case scenario indicates a slowing economy while avoiding a recession. He commended the economy’s surprising strength despite the measures taken to tame inflation.
However, Kashkari also cautioned that the current monetary tightening could lead to some job losses and a softening labor market. While widespread job losses and wage drops have not been observed yet, he warned that such consequences should be expected as the Federal Reserve aims to curb inflation without causing significant disruptions in employment or growth.
The US unemployment rate, which currently stands at a historically low 3.6%, might increase slightly to around 4% in the coming months. Kashkari noted that even with this potential uptick, it would still represent a soft landing, aligning with the Federal Reserve’s objective of cooling prices and demand without causing significant harm to the job market or overall economic growth.
Kashkari emphasized that the Federal Reserve is closely monitoring economic data to guide its decision-making on any further rate hikes. Although core prices rose less than expected at 4.1% in June, the figure still remains above the central bank’s 2% inflation target. He asserted that the Federal Reserve will not hesitate to raise rates further if necessary to address inflation concerns effectively.
In its latest move, the Federal Reserve raised the target range for the benchmark federal funds rate to 5.25% to 5.5%, the highest level since 2001. This marked the 11th increase since March 2022, when the rate was near zero, indicating the central bank’s determination to address inflationary pressures.
As the Fed continues its efforts to strike a balance between inflation control and supporting the economy, it remains to be seen how the future unfolds, particularly in light of ongoing economic challenges and uncertainties on both domestic and global fronts.
