Minneapolis Fed Pres. Kashkari (nonvoting member) is speaking and says:
Fed's Kashkari
- Housing market is proving more resilient to tight monetary policy than it has been in the past
- Possible that housing market resilience means the neutral rate has been pushed higher at least in the short term
- inflation progress seen in latter half of 2023 appears to have stalled,
- The question is whether disinflation is still underway or just taking longer
- The recent slow GDP due to inventories and net exports, underlying demand remains strong.
- The yield curve inversion suggests that policy is indeed tight.
- He modestly raised his neutral rate to 2 1/2% from 2%.
- It is hard to explain the robustness in the economy.
- Inflation moving sideways raises questions about how restrictive policy is.
- Policymakers miss perceiving the current neutral rate could explain current data.
- Updates to economic outlook were included in new essay.
You can read the full essay: CLICK HERE.
Kashkari has been more of a hawk of late.
US PCE inflation
The conclusion from Kashkari's essay:
The FOMC has undeniably tightened policy meaningfully, both relative to the pre-pandemic period and to some prior tightening cycles. Nonetheless, it is hard for me to explain the robust economic activity that has persisted during this cycle. My colleagues and I are of course very happy that the labor market has proven resilient, but, with inflation in the most recent quarter moving sideways, it raises questions about how restrictive policy really is. If policymakers and market participants are misperceiving the neutral policy rate, that could explain the constellation of data we are observing. This is also a communication challenge for policymakers. In my own Summary of Economic Projections (SEP) submission, I have only modestly increased my longer-run nominal neutral funds rate level from 2 percent to 2.5 percent. The SEP does not provide a simple way to communicate the possibility that the neutral rate might be at least temporarily elevated.
