Fed’s Kashkari convinced that inflation could weaken, but not without pain

Neel Kashkari

Anjali Sundaram CNBC

Minneapolis Federal Reserve Chairman Neel Kashkari said Monday that he is confident inflation will return to normal, although it will take longer than he expected.

Acknowledging that he was a “transition team” in the belief that the rise in prices would not last, he said persistent supply and demand imbalances generated the highest inflation rate in more than 40 years.

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

“I am confident that we will return inflation to our 2% target,” Squawk Box told CNBC in a live interview. “But I’m still not sure how much of that burden we’re going to have to carry in relation to getting help from supplies.”

His comments come less than a week after the Federal Open Market Committee raised interest rates by half a percentage point to set interest rates. The increase of 50 basis points was the largest increase in 22 years and sets the stage for a series of moves of similar size in the months ahead.

Although Kashkari has historically favored lower rates and looser monetary policy, he voted for two increases this year as necessary to control rising prices. He noted, however, that the burden of stricter policies will fall on those at the lower end of the pay spectrum.

“These rising prices have punished the lowest-income Americans the most, and yet your anti-inflation policy tools have the most direct impact on the lowest-income Americans, either by raising the price of a mortgage … or if we have to do so much to get the economy into recession, ”he said. – Their jobs are most likely at stake.

“Therefore, I think this is a difficult challenge for all of us, but we also know that letting inflation at these very high levels is not good for anyone and not good for the long term economy for potential for anyone regardless of distribution revenue,” he added. is.

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

Economists expect the rate of inflation to slow slightly in April, with the main consumer price index likely to show an increase of 8.1% from last year and 6% excluding food and energy, according to Dow Jones estimates. This is compared to the March rises of 8.5% and 6.5%.

Such figures provide comfort to Kashkari, although he said conditions remain challenging as long as there is an imbalance between supply and demand.

“We just need to keep paying attention to the data,” he said. “Some recent data on inflation by some measures is a little softer than we thought it might come. So there may be some evidence that things are starting to soften by a hair. But we just need to keep an eye on the data and see where it comes out before we draw any conclusions. “

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