The Federal Reserve Bank Minneapolis CEO and President Neil Kashkari said Sunday that the current state of inflation is “extremely concerning” and “spreading more broadly across the economy.”
“It’s very concerning. We keep getting inflation readings, new data coming in as recently as last week, and we’re still surprised. It’s higher than we expect,” Kashkari said during an appearance on CBS’ “Face The Nation.” “It’s not just a few categories. It’s spreading more widely across the economy and that’s why the Fed is acting so urgently to control it and bring it back down.”
Kashkari stressed that while wages are rising for many Americans, so are the costs of goods and services, meaning workers are facing a “real wage cut” due to Inflation is growing very fast. He said wage inflation is not happening, and that the cost of goods is partly due to disruptions in the supply chain, caused by the pandemic and now the war in Ukraine.
“For most Americans, their wages are going up, but they’re not going up as fast as inflation, so most Americans’ real wages and real incomes are going down,” he said. “They’re getting a real wage cut because inflation is growing very fast. I mean, usually, we think of wage-driven inflation where wages are growing rapidly and that causes prices to rise in a self-fulfilling spiral – and that hasn’t happened yet. Higher prices and wages are now trying to catch up with those prices. “These high prices are now being driven by supply chains and the war in Ukraine among other factors. And so we need to rebalance the economy before this really becomes a wage-driven inflation story.”
Referring to the recent results of the Economic Cost Index, he stressed that it is good for Americans to earn more, but the Federal Reserve cannot wait for the supply chain to adjust to lower prices.
“Only at its most basic level, inflation occurs when demand exceeds supply. We know supply is low because of supply chains, because of the war in Ukraine, because of COVID. We were hoping that supply would come online more quickly. That didn’t happen,” Kashkuri said. Lower the demand in the balance. Now, I hope we get some help on the supply side, but that doesn’t change the fact that the Fed has its job, and we’re committed to doing it he-she.”
“We cannot wait for the supply to heal completely. We have to do our part in monetary policy,” he added.
Kashkari argued that the new bill was introduced by Senators Chuck Schumer, DNY, and Joe Manchin, DW. Virginia, dubbed Inflation reduction law “It won’t have a significant impact on inflation” for the next several years, and the Fed’s job will be to adjust monetary policies to reduce it.
“In the short term, the demand side effects completely affected the supply side effects. And so, when I look at a bill that has been considered and talked about by the senators, I think for the next couple of years, it won’t have much of an impact on inflation.” “It won’t affect how I analyze inflation over the next few years. I think it might have some impact in the long run, but in the near term we have a severe mismatch between demand and supply, and it’s really up to the Fed to be able to lower that demand.”
The White House has repeatedly declined to acknowledge The US economy is in recession He was discussing the definition of the term. On Sunday, Kashkari argued that inflation is so bad that it doesn’t matter if we use the term stagnation or not, and serious work must be done to tackle it.
“Basically, it looks like the labor market is very strong while GDP, and the amount that the economy produces seems to be shrinking. So, we’re getting mixed signals from the economy. From my point of view, in terms of inflation control and whether we are technically in recession or not It doesn’t change my analysis.” “I focus on inflation data. I focus on wage data. So far, inflation continues to surprise us to the upside. Wages continue to grow. So far, the labor market is very strong. And that means whether we are technically in a recession Or not, it doesn’t change the fact that the Fed has a job to do.”
“We are very far from achieving an economy that has returned to an inflation rate of 2%. And that is where we need to get to,” Kashkari added.