Neel Kashkari on the Fed’s Quest To Get To Full Employment

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 (0:18)

So Tracy, this is a fun time for us. This is a real treat. Last week, of course, we got to speak to Dallas Fed President, Rob Kaplan.

And even since then, though, we've had plenty going on, including a very big jobs report.

Tracy Alloway (0:35)

Yes, like a powerhouse of a jobs report, really.

I think payrolls climbed by, I think it was 943,000 in July, which was much, much higher than economist expectations of about 870,000. And of course, the unemployment rate keeps drifting lower. I think it came in at what was at 5.4 percent, which is basically the lowest since the pandemic started. And we're not quite where we were before the outbreak of COVID-19, but we're certainly getting closer.

Joe Weisenthal (1:10)

That's right. So of course, in the early part of the summer, you probably recall there were like two reports where economists were looking for like big things, like a million plus jobs, and they didn't really materialize, and there's all kinds of concerns, oh, what's holding back the labor market. The last two data points, however, have been quite strong, nearly a million each and no signs of slowing. We see the headline unemployment rate coming down pretty rapidly now.

So I would say some of the labor market healing that maybe people thought would come a little sooner, maybe just this spring, it seems to be kicking into gear, of course, the delta wave of the ongoing pandemic, notwithstanding.

Tracy Alloway (1:50)

Yeah, but of course the question is, what exactly are policymakers looking for when it comes to employment? And we've spoken about this quite a few times now, but it does seem like the definition of full employment has changed to something much broader and inclusive, and everyone's trying to wrap their heads around exactly what that means, at the same time that they're also trying to wrap their heads around average inflation targeting and things like that.

Joe Weisenthal (2:17)

Yeah, exactly right. So we know that the Fed seems to be, and I think a big part of the framework that was unveiled basically a year ago this time at Jackson Hole was about taking the employment side of the mandate more seriously, or to put it another way, not hiking or not trying to fight off inflation just because employment hit some arbitrary number that some economist model says, oh, this is full employment. Like actually sort of like waiting to see, waiting to see it really happen.

And so once again, you know, here we have the unemployment rate dropping rapidly, at least as of last month, hopefully it continues. And it seems like policymakers will once again be confronted maybe next year with questions of like, how much better can the labor market get?

Tracy Alloway (3:03)

Yeah, and of course, I mean, the big thing that everyone is watching is wage growth, right? And I think we did see a relatively significant spike in the payrolls report.

In particular, some of the sort of like lower wage workers, people working in restaurants and leisure, they saw a fairly big spike. So again, the question is, what is full employment? Is this enough of a recovery to start boosting inflation through wages? And then what does that actually mean for the average inflation framework that the Fed adopted last year?

Joe Weisenthal (3:38)

Exactly right. Well, once again, we have the absolute perfect guest to speak to this. It's gonna be a true treat. We're gonna be speaking with Neel Kashkari. He's the president of the Minneapolis Fed. And of course we had Neel on basically a year ago, exactly this time. And at that time, some of these questions about the Fed's new framework, they were just sort of theoretical and like thinking about this. And suddenly theory is now being put into practice and we'll have to learn more about what the Fed is going to do.

I would characterize Neel as someone who has always taken the employment side of the Fed's mandate very seriously long before COVID hit. And so hearing how he'll think about some of these questions should be very interesting.

Neel, thank you so much for coming back on Odd Lots.

Neel Kashkari (4:26)

Thanks for having me. It's great to be with both of you.

Joe Weisenthal (4:28)

So why don't we just start like with, we got that jobs report on Friday. We're recording this August 9th. I guess by the time people hear this, it'll have been like a week and a half. But we just got this jobs report, very strong on all basically all the metrics.