YouSaid · the spoken record

Neel Kashkari

lines on the record: 42
first: 2022-08-31
most recent: 2022-08-31
sittings or episodes: 1
sources: podcast

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“Sensible that we would take a few months to figure out is this really a new world or are we going back to the old world before we adjusted our stance of policy? You know, people call us all the time with all sorts of predictions about how the world is totally different and we're totally missing something here or there. If we listen to all of them or if we listen to all the cranks on Twitter, we would be completely paralyzed for making any decision because somebody is always predicting something one direction or another. And so to me, I think we need to be very thoughtful when we just abandon what we have recently experienced and just assuming we're in a whole new world. In this case, we are in a new world. How long is our world going to last? I don't.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Know it's tough. It's something I think about a lot. And I go back in time. So for the eight or ten years before the pandemic hit, we struggled with inflation that was a little too low. And as we talked about earlier, Joe and Tracy, we kept getting surprised that we thought we were maximum employment and there were a lot more workers to come. And before the pandemic, we had 3.5% unemployment rate and modest wage growth and low inflation. So then the pandemic hits. A lot of fiscal stimulus. And in May 2021, just over a year ago, core inflation finally ticked above 2% and the unemployment rate was still 5.9%. So we had achieved 3.5% with no real inflation before. Now it was 5.9%. At that moment, should we have just declared, oh my gosh, we're in a new regime? I actually don't think so. I mean, yeah, sure, knowing what we know now, but knowing what we knew at the time, I think it's eminently.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“It's actually been It's been easy for me because I just look at the data with our economists here and we try to assess where the economy is and what monetary policy makes sense. These labels of Dove and Hawk, I understand why people give them their convenient shorthand, but they're really flawed. I mean, if I always were dovish, no matter what the state of the economy was, I always said we need to keep interest rates low. I wouldn't be a very useful policymaker. And so, you know. The economy changing now. Esther George, my good friend from the Kansas City Fed, who was considered to be one of the more hawkish, has now been identified as one of the more dovish in this scenario. You know, Esther is a very thoughtful experienced policymaker. She's looking at the data. She's making her best recommendations based on how she sees the economy. And that's what all of my colleagues are trying to do. The labels are shorthands, but they're pretty imperfect.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“The economy with liquidity. And I think the reason that they tightened so quickly is because markets were pricing in the quantitative tightening to come in addition to the federal funds rate hikes. So it's an inexact science. I mean, I don't think 100% of it gets priced in. I think some of it does actually happen over time as the balance sheet actually shrinks. But I think a lot of the action has already taken place would be my guess.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, unclear if you look at a lot of different models of how quantitative easing works, it suggests that it doesn't have a big impact. You know, Chairman Bernanke famously quipped many years ago. QE works in practice but not in theory. And the way we think it works that those models cannot capture is really about a signaling mechanism for the future overall stance of monetary policy. And so a lot of the effects of QE or QT get priced in right away. as soon as we lay out here's our plan for the balance sheet. So when we announced, here's our plan for the rolloff. Here's how many billion dollars a month. Here's the path. A lot of that gets priced in right away. And that's why if you look at long-term real yields, you can see that they reversed themselves this spring really rapidly. I mean, they climbed in the spring much faster than they fell in the spring of 2020 when we were”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Inflationary dynamics are different, are hotter, and more embedded than we understand them to be right now. I think there's a limit to how much we can drive long-term real yields higher. And so that's going to be a limit to how tight we can make broader financial conditions until that recognition of the different inflationary dynamics becomes clear.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I think so. I certainly was not excited to see the stock. Somehow, I think the markets were misunderstanding that. And I was actually happy to see how Chair Powell's Jackson Hole speech was received. People now understand the seriousness of our commitment to getting inflation back down to 2%. But, you know, it goes back, think about it, we talked about real bond yields. So think long-term real yields, they're positive, you know, depending on your measure, slightly positive, up to plus 0.5%, maybe up to 1% by some measures over the last several months. It's kind of an intellectual exercise. If we wanted to push long real yields to plus 2% or plus 3%, could we even do that? And the reason why we're limited in our ability to do that is because embedded in those markets, our market expectations of what's going to happen to inflation over the next few years. And that's where I keep going back to until and unless we in markets collectively believe the inflation”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I think it goes back to something we spoke about a few moments ago, which is markets expectations and our expectations that inflation expectations are well anchored and that inflation is going to come down rather quickly over the next few years. If that assumption is wrong that we share and financial markets share, even though they're more bullish than I am, if we're all collectively wrong about the underlying inflationary dynamics, when that reality is revealed and we realize it and they realize it, then you would expect to see financial markets fundamentally reset at a much tighter setting and you'd see longer term real yields much higher than they are today. That's not my forecast, but that's, I think, what it would take to really see a dramatic tightening of financial conditions from here.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“No, if we achieve the goals, absolutely that would be a reason to relax our contractionary monetary policy. I'm just surprised that markets would think that we're going to achieve that goal as quickly as they seem to. Again, I hope they're right. And we'll take that data on board if they are right. But that's where I think the disconnect is.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I don't know. I have said publicly I did an event at Aspen at the Aspen Institute a few weeks ago, and I said the markets are not consistent with my outlook for interest rates and inflation. All I could read from that is they think we are going to achieve our dual mandate goals more quickly than I do, and then we would be in a position to cut interest rates. And I certainly hope they're right. But that's not my forecast right now.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think if we continue to see inflation ratings that inflation is coming down, like subsequent, multiple subsequent readings, then that would... Probably argue for me that we could raise interest rates more slowly, or maybe we are getting to the point where, hey, in a few more hikes, we could get to something and just sit there, pause until we really are sure that it is done. To me, how high we get and how fast we get there, that is less important than us not backing off. I mean, to me, the bar to actually cut interest rates, that is going to be for me very, very high. We can raise more slowly. We can sit there for longer. All of that, I'm open-minded about, and the inflation data should guide us. But to me, the big error that we could make, but I don't expect us to, is cutting interest rates prematurely.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, it's a fair point, but I think the effects on the supply side are much slower than the effects on demand. And so our hope is that we can get demand down into some form of equilibrium with 2% inflation over the next couple years. And then we get the economy back to what we would call something like normal. And then you could really unlock the supply. The supply is just a much slower moving mechanism than it is on the demand side. So it's a fair point, but I think the timing errors towards effects and demand rather than effects and supply.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I'm not theoretically I agree with you, Tracy. I'm not seeing much evidence of that. Just take the oil sector where oil prices have been very high. There's been maybe less investment than I would have guessed going in to try to take advantage of these high prices, in part because if you look at the futures markets for oil, prices are expected to come down over the next few years. And so you could understand why investors are hesitant to pour a lot more money into more rigs, example, to take advantage of these high prices. And so theoretically, I agree with you. I'm not seeing much evidence of that. And that would ultimately show up in higher borrowing costs, higher long-term interest rates. And those rates still are quite low relative to history.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, absolutely, the more help we can get from other parts of the economy and potentially other parts of the government, the less we have to do. As you all know, we can only limit demand. We can't do anything on supply. And if supply comes online, then that reduces how much we need to reduce demand to get those two things into balance. Now, it's also hard. I mean, it's hard for the fiscal authority in the short run to create more supply. It takes a long time. So actually I'm looking at the government will welcome it, but I'm also looking at the private sector. You know, private sector firms are very focused on trying to fix their supply chains to meet their customer demand, to keep their costs low. They're making some progress from what I can tell, the progress is uneven.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Just like the Inflation Reduction Act, I think the CBO scored it as net deficit reducing over 10 years. My guess is it's not going to have a big effect on inflation in the near term, but we will analyze it. We will put it into our economic models, and ultimately we'll factor that in as we come up with an interest rate outlook.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we analyze whatever Congress passes in terms of the fiscal environment. And then that goes into our models as an input. My guess is it's not a huge number. If you look at the student loan relief as an example, generally speaking, it's pretty regressive, meaning it tends to skew towards people who are relatively better off in our economy, the lowest income Americans generally didn't go to college and don't have student loan debt, so to speak. And the more it's regressive, which is not a, I don't think that's a policy objective of the authors, but the more it's regressive in a curious way, the less inflationary it is because those folks are less likely to spend the money on consumption, they're more likely to save the money or pay down other forms of debt as an example. I haven't studied it very carefully. My best guess is it's not a big deal one way or the other in terms of outlook for inflation in the near term.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we pay attention to it. We have a really talented team of economists who focus on the whole global economy at the Board of Governors. We've got a lot of international economists here at the Minneapolis Fed. But we pay attention to it because it's a feedback loop back to the American economy. We have to, our charge is to conduct monetary policy to optimum outcomes of our dual mandate for the U.S. economy. And so we run these scenarios. If the dollar goes up, what does that mean for imports? What does that mean for growth around the world? And then ultimately, what does it mean for inflation and employment in America? And so we are aware of it, but we are focused on optimizing our policies based on what the outcomes are for the U.S. economy and for the American people.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there could be. I mean, I think it's going to be people's decisions, which is as unfortunately this high inflation is really punishing families and lower income folks are the least able to bear it. So you could see people saying, hey, I didn't want to go back to work, but I need to go back to work because this is getting too expensive to put food on the table. And as wages climb, people are saying, I need to go back to work or I'm going to go back to work. And so to me, ultimately, maximum employment is as many people working that is consistent with our underlying 2% inflation objective. Those two things are, in my mind, tightly linked concepts. And so yes, there may still be slack, but we need to get inflation back down to 2%. And then we'll be in a position to understand, is the economy in equilibrium or not?”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Right now for me, it's a curiosity. I mean, a little bit of its math. We talked about earlier, Tracy, that the labor market's been hiring a lot of people, creating a lot of jobs, which is good news. Well, you know, if you end up hiring a lot of people and you don't have very strong GDP growth and you put those two things together, you're going to get up with very low or even negative productivity growth. So the negative productivity growth is not really a surprise. It's just those two factors adding together. I think it'll be interesting to see what happens with GDP. Does it get revised up over time? Does it come closer to gross domestic income? And then more broadly, at some point these firms, one theory is these firms are hoarding labor. They're just hiring a lot of people because they wanted to hire them over the last few years. And when they become available, they hire them. Firms can't do that for very long. They're going to have to make rational decisions. And so it should end up showing up in the labor market. And so it's something we pay attention to, the productivity.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe they work 20 hours a week remotely because technology enables it. So some of the developments of the last two years could actually point in a positive direction, but it's the health elements that I think are almost unequivocally negative. And that's the one that I just need to see. We need more time to figure out.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a good question, Joe. The answer is I don't know back in the earlier recovery, the last recovery, people just kind of waved their hands and said mismatches and structural changes. They couldn't point to anything. Right now, you actually can point to something, which is there are a lot of people who have long COVID. There are people who continue to get sick from COVID multiple times. And even if that doesn't permanently exit them from the labor force, there's some cohort of folks that are not in the labor force today because they're sick with COVID. And so it's this health dimension that seems to be more real than just this people making stuff up for why the natural rate of unemployment would be higher or why the EPOP ratio would be lower. Retirement is another one that you mentioned. There is some evidence that retirees can come back if the labor market looks attractive. And the other thing is there's some new technologies that might mean that somebody who used to work 40 hours a week, they want to retire.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Sitting where I am today, and there's more data to come in between now and the September meeting, nothing has really changed that would dramatically change my rate path outlook. But again, I don't want to prejudge it. I need to look at the remaining data that comes in. And this is something that I deliberate on a lot with our research department here as we look at different scenarios. But from the data I've seen, it hasn't doesn't imply a big change to my rate path.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Then you could see markets discovering that, we discover that, and all of a sudden we need to be in a substantially higher interest rate environment. I'm not ready to forecast that now, but I'm also not ready to rule it out.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Knowing what we know now, I mean, the challenge is so we have to look at, first of all, I think the overnight interest rate is interesting but not that interesting. What's much more important are longer-term real rates. That's what I believe drives economic activity, five-year real rates, 10-year real rates. They're positive now. Now, the question is, though, embedded in those real rates are market expectations for inflation expectations over the next five or ten years. Four to five percent is probably where I would guess right now the level of restriction needs to be given what we and what financial markets believe about inflation over the next few years. The biggest risk, not the most likely risk, but the most damaging risk is if we and financial markets are fundamentally misreading the underlying inflationary dynamics. And if markets believe that inflation is going to come quickly back down to 2% over the next couple years, if that's just wrong,”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“They're hard to see, they're hard to measure exactly. There's a lot of things happening in the economy. I would be much more comfortable raising rates to some endpoint. Let's say it's four, let's say it's four and a half, maybe higher. Whatever we think is needed at the time, and then just sitting there. And let's just press pause and wait to see how some of these underlying dynamics evolve. To me, the most costly mistake we will make is if we get fooled thinking, oh, we've got inflation licked. Now let's go cut interest rates because the economy is showing signs of weakening. That to me has a potential really dramatically negative effect on our credibility and on people's belief that, hey, they're just going to repeat the mistakes of the 1970s. And so the way to deal with the lags for me is just to get somewhere and sit there until we're really convinced that we've got inflation licked.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“It's hard and it's complicated. We know that interest rate sectors of the economy will be affected most and most quickly, and they already are, housing being the best example of that. But we also know, we study history a lot and we study what has worked in history for policy and what has not worked.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I don't think so. I mean, we left ourselves a lot of wiggle room. I've never been a subscriber of rigid monetary rules because strange things happen in the economy. And if you tie yourself to this rigid monetary rule, then you end up doing very damaging things. And so, no, I don't think so. I think that we will be able to get inflation back down over the next several years to our 2% target. And I don't think we're going to then say, well, we have to go run it 1% inflation for the next X number of years to average mechanically average 2%. I think that that would be silly for us to do that.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Vaccines available within a year. And so the economic downturn was much shorter than had been expected at the time the stimulus was passed. And so now we've got a very strong labor market recovery. Did Congress learn the wrong lesson from 08 or 09? I don't think so. I was very emphatic, better Aaron doing too much than too little. So now we're in a position that we collectively have done too much and we need to adjust. But I don't want to go to those millions of Americans who are working today and said, you know what, you shouldn't have your job. We should have been much more timid in our recovery because all of a sudden we might have been in a new regime that we didn't foresee.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I think everybody always says that everybody's always guilty of fighting the last war, whether it's in economics or it's in the military, you have to learn from the last war and you have to make yourself stronger so that you're not vulnerable the way you were last time. And so go back in time. The big mistake in hindsight that Congress and the Fed made coming out of the 0809 downturn was we were not aggressive enough collectively in supporting the economy and supporting Main Street. And it took 10 years to put Americans back to work. That is way too slow. This time, Congress said very aggressively in the COVID downturn. They passed big fiscal stimuli. And when most of that stimulus was passed, we had no idea when and if vaccines would be available. I was talking to the best health experts in the country and they said we just don't know how long it's going to take. And so it's actually a miracle of science that we have multiple highly effective.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Not what we were talking about a few years ago. This is a completely different situation. And while one might eventually conclude, hey, you don't want to run an economy hot, at least for me, it's entirely premature to draw that conclusion right now. And in the context of what we meant about a hot economy a few years ago.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Is literally designed to provide more stimulus in those low inflation periods, but once you get back to a high inflation period, 2% or above, then the new framework is the old framework. It just goes back to conducting monetary policy the way we did in the past. So in that context, we were asking how do we provide a little bit more of a boost to the economy in periods of low inflation? And that's what I would define as running the economy hot in that context. Now, in contrast, Where are we now? We had multi-trillion dollars of fiscal stimulus. We have supply chains that were gummed up because of COVID. We have millions of missing workers relative to what we expected. We also have a war, Russia launching war in Ukraine, which is upending commodity markets and energy markets. Those are two wildly different scenarios. And so that's why in the meeting, I was pushing back on the notion of, well, this proves that it's really dangerous to run an economy hot.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I would say it starts with the actual inflation that American families are experiencing. So let's just go back in time a few years before the pandemic. We had 3.5% unemployment for the four or five years before the pandemic. We at the Fed kept thinking, oh, we're at maximum employment. And then we started raising interest rates. And I objected to those because I wasn't sure that we were actually at maximum employment. And inflation was coming in under our 2% target. And then the job market, the economy kept creating jobs much to our surprise, suggesting we were not in fact at maximum employment because inflation stayed low and wage growth was picking up only moderately. So in that context, we asked ourselves, is there some way we could provide more of a boost to the economy using monetary policy during times of low inflation? And that's how we came up with our new framework that we adopted a year or so ago. And that framework.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't know. Certainly, I want to see a strong labor market. I want to see people getting jobs. I want to see real wages going up. So that gives me more comfort that we're. For me, individually, I don't think the labor market itself is going to be determinative of 50 versus 75 or what the subsequent reading needs to be.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, as you said, Joe, it's basically one data point. We've been surprised for the past year almost every time of inflation surprising us to the upside. So if we have one surprise somewhat to the downside, I'll happily take it. But I don't take much signal from that. We need to see a lot more before we get convinced that inflation is well on its way back down or that we've seen peak inflation. I'm not convinced of that yet. To me, if the inflation readings that we've gotten since the last meeting were surprising as to the upside yet again, then I think you'd probably see people talking more about, hey, would they consider 100 basis points? I think the fact that the chatter is 50 versus 75, we've got more data to see before I would be ready to draw any conclusions from that. But my guess is we're somewhere in that range of 50 to 75 for the next meeting based on the data that has come in.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Where monetary policy needs to go. But certainly as forward guidance expressing our commitment to getting inflation back down, I think it's very valuable for us all to express that.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think this notion of the death of Ford guidance is premature and probably an exaggeration. What does forward guidance even mean? I see value in members of the FOMC going out and saying, we are united in our commitment of getting inflation back down to our 2% goal. That means we are going to do what we need to do to achieve that. And how much we're going to need to do, it's going to depend on what happens in a lot of the sectors of the economy or supply chains, et cetera. us expressing our commitment, our united commitment to doing what we need to do to get inflation back down, that's a form of forward guidance. Should we not articulate that? I don't agree with that at all. And so, yes, I want to say there's a lot of uncertainty about what's going to happen at the next meeting or what's going to happen by the end of the year. It's going to depend on all of these different factors. That's all true. And I think we should be honest about how much uncertainty there is about these factors and what's going to drive.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“And a more sooner achievement of the dual mandate goals, which would then allow them to back off. Now, does that technically mean it would be a recession? I don't know. But I interpreted it to mean markets thought we would more quickly achieve our dual mandate goals, and then we would be able to relax somewhat. It's an interesting data point that I pay attention to. It's not driving my recommendations at this point, but it's something that I think is giving us some information.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's something I do pay a lot of attention to both the nominal yield curve and the real yield curve. They usually move together, but because of these inflationary dynamics right now, there are some differences. So the last time I looked, the nominal curve had inverted. I focused mostly on the 210 curve. The real curve had not yet inverted but was getting close. Something interesting happened in July. You remember the Bank of Canada raised interest rates by 100 basis points. And there was a lot of chatter before our prior FOMC meeting. Would the FOMC raise by 100 basis points? And the yield curve did something very interesting. The front end of the yield curve went up, as you would expect for a more hawkish expectation of monetary policy. But the back end of the real yield curve went down. So why would the back end of the real yield curve go down? I interpreted it as markets were saying, hey, they may be more aggressive with monetary policy. That may lead more quickly to some type of slowing of the economy.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll give you a few examples. So, first of all, we look at all the different measures we can, which are survey-based measures that you just mentioned, as well as indicators embedded into financial markets. And they're all suggesting that, hey, inflation is going to come down fairly quickly, especially if you look at the financial markets. The market seem to think inflation is going to fall rapidly next year. And I hope they're right. Now, part of the reason I think that Seem to be trusting in us, but that doesn't absolve us from needing to then follow through. It means that more than ever, we need to follow through to make sure that those expectations are vindicated.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“And that I am willing to tolerate for risk of unanchoring inflation expectations. If we were to allow that to happen, that would be very devastating to Main Street, to our economy, to people all across our country”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“I changed my mind because the data didn't react the way I expected it to. So when a year ago when we were speaking, we talked about how much fiscal stimulus was in the pipeline. We talked about workers who were probably going to return to the labor market. And it's true the fiscal stimulus ran its course, but if you look at consumer balance sheets, generally speaking, the American consumer is still doing very, very well, even relative to where they were before the pandemic. We've seen multiple waves of COVID. We've seen some workers return. They have not returned as quickly as I had expected. And at some point, even if those things ultimately proved to be true, they're taking so long to resolve themselves that we are running the risk at the Federal Reserve of allowing inflation expectations to become unanchored. So even if in the end when history writes the book, they might say, hey, some of these factors were in fact still transitory, but they're simply taking much longer than I had expected.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's a good question. It's a very important question. And unfortunately, the answer is we don't know. You know, this is not a labor market-driven surge of inflation. This is not the traditional story where labor market gets tight, wages climb, businesses have to pass those costs on, and then that leads to inflation. This inflation has been driven by mostly by supply chains, by the war in Ukraine, and by a lot of fiscal and monetary stimulus putting money into people's pockets. And wages have been climbing, but they've been a lagging indicator, not a forward indicator of inflation. And so when I think about that, that tells me it really depends on do we get more help on the supply chains? Do we get more help from commodity prices? And as fiscal stimulus wanes, that should relieve some of the pressure. And then the labor market will have to carry less of the burden, so to speak, through monetary policy.”
2022-08-31 · Odd Lots · Neel Kashkari on the Fed's Commitment to Defeating Inflation · IDENTIFIED FROM THE TRANSCRIPT · source