Minneapolis Fed President Neel Kashkari On The Historic Challenges For Monetary Policy

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, if it weren't for the coronavirus, this would be the week of a pretty important sort of gathering of the brightest minds in monetary policy, Federal Reserve, central banking, all around the world.

Tracy Alloway (0:33)

That's kind of a big if, isn't it? Like, if it weren't for everything that threw 2020 into disarray, this other thing would be important. But yes, it is Jackson Hole Week. And Jackson Hole Week is traditionally when the sort of luminaries of economics gather to talk about the issues that are most pressing to them from an academic perspective and also from a real economy perspective.

And it's usually the time when we have lots of interesting discussions, lots of interesting speeches coming out from policymakers and lots of interesting academic papers as well.

Joe Weisenthal (1:08)

Right, and so today we are recording this on Wednesday, August 26th.

So by the time people hear today's interview, the Jackson Hole event, it's actually still happening, but it's just happening digitally, sort of like all meetings are happening these days. But yes, this is the week of the famous Kansas City Fed Monetary Policy Symposium. And I think it comes at an extremely important and interesting time for the Fed and for the economy and monetary policy.

Tracy Alloway (1:40)

Yeah, absolutely. So there are two things, I think, that are really important this week, and one is sort of short term, and that's just the whole coronavirus-induced economic crisis and the policy response to it. So clearly, that's going to be up for debate and discussion at Jackson Hole this year. But the other one is a more long-term development, which is that the Federal Reserve is rethinking its inflation-targeting framework. So we could get something very interesting out of the Fed this week.

Joe Weisenthal (2:11)

Yeah, that's exactly what I was thinking. It's like the two things happening at once. And I would actually even say it's beyond just the rethinking of the specific approach to monetary policy, and it's part of this, even preceding coronavirus, there was this sort of rethinking of the role of monetary policy, the limits of monetary policy, the economic costs of over-reliance on monetary policy, what monetary policy actually does. So we really are in this moment where a sort of medium or short-term economic situation is coinciding with a much sort of like bigger, deeper discussion that was already building to a head.

Tracy Alloway (2:49)

Yeah, absolutely. And the two are sort of feeding off of each other. So it's a very interesting moment in time, as you point out.

Joe Weisenthal (2:56)

So I am extremely excited about today's interview. It should be extremely special because we're going to be speaking to an actual active top Fed official today. Our guest is well-known. He is the president of the Minneapolis Federal Reserve. He is also known during the last crisis when he was on the treasury side, when he was involved with the workings of the TARP program.

So public figure for a long time now on the monetary policy side, really interesting thinker.

Neel Kashkari is joining us. So we're going to be talking about the intersection of all these different things. So Neel, thank you very much for joining us.

Neel Kashkari (3:40)

Thank you, Joe and Tracy. Thanks for having me.

Joe Weisenthal (3:43)

Let's just start off with actually just this moment in time. And I'm curious, like, you know, the unemployment rate is back down to just over 10%.

A lot of economic indicators have actually held up surprisingly well, given the devastation. There's actually arguably a V-shaped recovery in housing. Auto is doing well, retail sales doing well. Have you been surprised by the strength of the economic data that we've seen so far?

Neel Kashkari (4:11)

I think it cuts both ways. I mean, yes, in some sense, the economy has bounced back, but I think that's because we've reopened more quickly than the health experts recommended. And so, yes, it's great. I mean, I want to put Americans back to work as quickly as possible.

But if in doing so, we allow the virus to flare back up again and to start raging, continuing to rage across the country, then it seems like it's gonna be a short-term gain, not a long-term solution. And so, I'm cautious about the recovery.

Tracy Alloway (4:42)

I think you previously said that you're worried about a wave of bankruptcies. Can you maybe give us some color about what you're seeing out in your region in the Midwest? Is that actually happening? And are you worried about contagion from bankruptcies to the financial system?