Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, understands that consumers are still struggling to cope with high prices. And he’s got frozen lasagna to prove it.
Kashkari told CNN’s Poppy Harlow on Tuesday that he knows firsthand how expensive many consumer goods and services are.
The central banker took over grocery shopping duties for his family at the start of the pandemic, he said, and has continued to do so since then, he told ‘CNN This Morning’. His hometown newspaper, the Star Tribune, recently followed Kashkari on one of his trips to the supermarket.
“I pay attention to grocery store prices. There’s this big lasagna platter I used to buy that was about $16. Now it’s around $21. It’s my own little measuring stick of the evolution of inflation,” he said.
Kashkari acknowledged that inflationary pressures were easing, but said the Fed was still not comfortable with high prices, especially for services. He noted how many parts of the economy have come back strong, adding to inflation. He pointed out, for example, that his flight from Minneapolis to New York was sold out.
Continued strong wage growth is also fueling inflation, Kashkari said.
These are some of the reasons he thinks the Fed needs to keep raising rates, or stay higher for longer, to ensure it can drive prices down.
“We still have work to do,” Kashkari told Harlow, adding that the labor market is “too hot” and that’s one of the main reasons it’s “harder to bring down inflation”.
Kashkari has a vote this year on the Federal Open Market Committee, the Fed’s interest rate-setting group. He voted with his peers last week to raise the central bank’s benchmark interest rate by a quarter point to a range of 4.5% to 4.75%.
Although many investors are starting to think the Fed might take a break after just two more similar small hikes, to a level of around 5%, Kashkari said he thinks the Fed may need to raise rates further.
He told Harlow he expected short-term rates as high as 5.4% before pausing. This makes Kashkari one of the most hawkish members of the Fed, which means he is an advocate for higher rates.
However, Kashkari was previously seen as a dove, advocating at the height of the pandemic for more stimulus to help consumers and small businesses.
The good news is that Kashkari, like a growing number of financial experts, is beginning to think that the US economy could avoid a recession and instead have a so-called soft landing, or gradual cooling.
It’s hard to have a recession when the job market is still going strong, he told Harlow. The jobless rate just hit a half-century low at 3.4% and the economy added 517,000 jobs last month. Treasury Secretary Janet Yellen recently made a similar point.
However, the stronger-than-expected labor market poses more of a challenge for the Fed to bring inflation back to more normal historical levels, Kashkari said. It may therefore be difficult for the Fed to pull off a soft landing if it is to continue raising rates.
Kashkari, a former Treasury official who oversaw the Troubled Assets Relief Program (TARP), the bailout of federal banks after the 2008 collapse of Lehman Brothers and the ensuing financial crisis, also hopes the government does not not make matters worse by not reaching an agreement. reaching the debt ceiling before a default.
A default would be a “catastrophe” and a crisis must be avoided, he said.
“Congress decides how much they want the executive to spend, so it’s a little unusual for them to tell them to go spend that money and not give them the tools,” he said. “But that, ultimately, is up to elected leaders to come to an agreement.”