Fed’s Kashkari: Can’t allow inflation expectations to get unanchored
Source Fxstreet
Minneapolis Fed President Neel Kashkari warned that US tariffs act as a drag on economic growth and emphasised the central bank’s responsibility to prevent those trade measures from fuelling longer-term inflation.
Key Quotes
- Independent monetary policy leads to better economic outcomes, is foundational.
- Notes that his own change from dove to hawk to current moderate came from analysis of data.
- Fed policymakers are making best call they can, based on data. That's what independence means.
- Tariffs are somewhat inflationary.
- Tariffs also slow growth.
- Fed's one tool is in tension.
- Too soon to judge path of interest rates.
- Logical that tariff leads to one-time increase in prices, but backdrop of high inflation runs risk of unanchoring inflation expectations.
- Can't allow inflation expectations to get unanchored.
- So far long-run inflation expectations have not moved much. Fed's job to make sure they don't.
- Fed's job is to make sure tariffs don't lead to longer-term inflation.
- To no longer have a trade deficit, investors would have to conclude US is no longer best place to invest.
- Still early to tell if that's happening.
- Bond yield up and dollar down indicates some reassessment of where global investors want to invest.
- All of this can change quickly, with resolution of trade uncertainty.
- Haven't seen this level of anxiety since COVID hit.
- Interest rate level in US is largely influenced by capital flows.
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