Neel Kashkari on the Fed's Commitment to Defeating Inflation

Tracy Alloway (0:00)

So Joe, we have something pretty exciting coming up.

Joe Weisenthal (0:02)

That's right, we're going to be doing a live episode of the podcast, and listeners are invited to join.

Tracy Alloway (0:07)

Yep, we are going to be playing host to Perry Merling and Zoltan Pazar. The two of them are going to be debating the future of the dollar.

Joe Weisenthal (0:16)

It's on September 6th at 3 p.m. at Bloomberg HQ. And if you want to come, Tracy, how can people sign up?

Tracy Alloway (0:22)

It is totally free. All you have to do is make sure you RSVP in advance. Please send an email to oddlotsatbloomberg.net.

Joe Weisenthal (0:40)

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

Tracy Alloway (0:45)

And I'm Tracy Alloway.

Joe Weisenthal (0:46)

Tracy, what do you think of when you think of the Federal Reserve in August? Any sort of traditions or annual events come to mind?

Tracy Alloway (0:57)

Jackson Hole would be the obvious one, yes.

Joe Weisenthal (1:00)

Right, we are recording this Monday, August 29th. And of course, just on Friday, we had Chairman Powell's Jackson Hole speech, which I would say was very brief and the tone was definitely hawkish.

Tracy Alloway (1:14)

Very to the point. I mean, I think you actually wrote this in the newsletter, but it's clear that the Fed means business when it comes to fighting inflation. And the big news out of Jackson Hole was that Jerome Powell is willing to stomach pain for households and businesses in order to bring prices down.

Joe Weisenthal (1:31)

And the brevity of the speech was sort of telling, because I sort of think of Jackson Hole typically as like this place for like this venue for theoretical discussions about monetary policy.

Tracy Alloway (1:42)

Right, academic papers and things.

Joe Weisenthal (1:43)

And this was not a academic speech. It was saying, we're here to fight inflation and that's all I feel like saying right now.

Tracy Alloway (1:50)

I think that's right. But you know, you mentioned August traditions. There's another August Fed tradition, isn't there?

Joe Weisenthal (1:55)

There is another Fed August tradition, at least one that I think of. That is, of course, having Neel Kashkari, the president of the Minneapolis Fed on our podcast. This will be the third straight August. I don't know if that's actually intentional. I think it sort of always works out that way. I don't think we've purposely timed it around Jackson Hole each time, but we have Neel on again.

Tracy Alloway (2:17)

That's fantastic. There is clearly a lot to talk about, and clearly things have changed since the last time we spoke to him. I mean, back then inflation was, I think it was something like 5%, and now fast forward to the last data for July, 8.5%.

Joe Weisenthal (2:31)

Yeah, it's a lot higher than it was in the past. And of course, over the last year, we've seen this Fed pivot and this very aggressive attempt to now get inflation under control. Anyway, no more talking from us. Let's get right to our guest. So Neel Kashkari, thank you so much for coming back on the podcast.

Neel Kashkari (2:49)

Thanks for having me. I was looking forward to it, and I'm glad our tradition is continuing.

Joe Weisenthal (2:53)

I love this tradition. So let's just get right into it. So, one of the lines that caught a lot of attention from Chairman Powell's speech at Jackson Hole was that these higher interest rates, this effort to fight inflation, will bring some pain to households and businesses.

And nobody knows exactly how much, but it's clear that you and the rest of the committee are willing to do what it takes, or you're saying you're willing to do what it takes to fight inflation, even if that means paying for the labor market and an economic slowdown. In your research and analysis, do you have any estimate for where you think the labor market needs to go to? How high does unemployment need to get, from your perspective, or might it need to get in order to get inflation under control?

Neel Kashkari (3:40)

Well, it's a good question. It's a very important question. And unfortunately, the answer is we don't 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 mostly by supply chains, by the war in Ukraine, and by a lot of fiscal and monetary stimulus putting money into people's pockets.