Minneapolis Federal Reserve President Neel Kashkari stated that price growth remains a significant concern, even as the latest inflation data came in softer than economists had predicted. Speaking with CNBC’s Steve Liesman during a Council on Foreign Relations event in New York on Wednesday, Kashkari emphasized that “inflation is still too high.”
His comments followed the release of the August personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation. The core version of the index, which excludes volatile food and energy prices, registered at 3% annually, below forecasts. However, Kashkari noted that this figure did not alter his perspective, stating that inflation has been elevated for more than five years and continues to run around that 3% rate.
Kashkari highlighted that other economic indicators released Wednesday, including data on consumer spending and gross domestic product, demonstrated that the economy remains resilient. He described the labor market as “pretty good,” though he stopped short of calling it “great.” This assessment aligns with earlier data from management services firm ADP, which reported that private payrolls grew by 90,000 in September, exceeding expectations.
The Fed recently implemented its first interest rate hike in three years in an effort to curb persistent price growth, with signals suggesting further increases may be forthcoming. Kashkari reflected on a past conversation with a labor union leader who described inflation as more damaging to members than a recession, a sentiment that continues to shape his approach to balancing price stability and employment.
Regarding the impact of the artificial intelligence boom, Kashkari raised his estimate for the neutral funds rate to 3.25%, attributing the temporary increase to heightened demand for investment capital. While he acknowledged that AI could drive productivity, he expressed caution that current corporate investment might not yield the anticipated results or could be delayed. “The fruits have not yet borne out,” he said, warning that if the spending proves to be malinvestment, it could have broader negative consequences for the economy. He suggested the AI industry may need to become more efficient with resources in an era of tighter monetary policy.
Labor market is ‘pretty good’ but my grocery bill disagrees. Hope they don’t wait too long to act on this.
So they hiked rates and we’re still at 3%? I guess ‘cooling’ is relative when the fever’s lasted five years.