Comments from the Minneapolis Fed President in conversation with Yahoo Finance.
Contacts are optimisticWe have to wait and see what the new government policies are, we will have to wait and seeA one-time tariff increase in transitory but it can become tit-for-tat, right now we’re all just guessingImmigration could have a big effect but we will have to see what will happenNew lease inflation takes a couple years to work its way throughWe have good confidence that the housing piece of inflation will get to normal levels, though it may take a year or twoThe labor market has been surprisingly resilient, it’s a good labor marketThe economy looks like it’s in a strong positionIf we saw inflation surprise to the upside between now and December, that might give us pauseProbably not enough time for jobs to surprise on the upsideProductivity looks like it’s been stronger, which could mean a higher neutral rate If so, we may not cut as muchWe all agree that we’re above neutral nowThe rise in long-term yields doesn’t look like it’s about long-term inflation expectationsI think we’re modestly restrictive right now. I thought we were putting two feet on the brakes but in hindsight we were only putting one foot on the brakeMy judgement is that we still have a long ways to go in shrinking the balance sheetUltimately the economy will guide us in terms of how far we need to cut rates
Kashkari is candid and is oftentimes dovish but he sounded less like someone who wants to keep on cutting. His comment about one foot on the brakes was helpful in illustrating how he sees the economy and rates. The interesting discussion is about neutral right now and how close the Fed wants to go. He also touched on a longer timeline to get inflation all the way back to 2% and that should keep the Fed in the high 3s assuming no sharp slowdown in the economy. Of course, the Fed curve is also pricing 3.80% as the terminal rate.
This article was written by Adam Button at www.forexlive.com.
