Mark Wilson
Headline inflation may have peaked in June, but when stripping out volatile food and energy prices, consumer prices aren’t showing any signs of ebbing, Minneapolis Fed President Neel Kashkari said Wednesday at a Travelers Institute virtual event.
Indeed, headline CPI has been easing since the 9.1% peak in June, but core inflation most recently jumped to the highest level since 1982 in September, in a move that will likely keep the Fed on its aggressive rate-hiking track.
Bear in mind there’s a lagged effect in monetary policy, as the Fed’s rate increases take around a year to work through the economy, Kashkari pointed out. Still, its a bigger risk to undershoot on rate hikes than overdoing it as the Fed makes plain that it wants to return inflation back to its 2% objective, he added.
He said that he’s “fairly confident” stagflation, an economic environment in which high inflation merges with rising unemployment and little economic growth, won’t take hold. The unemployment rate is the lowest in decades which is partly why the Fed remains hawkish since it wants to moderate demand.
“I’ve seen very little evidence in my region that the labor market is softening,” Kashkari said. “The number one issue I hear from businesses small and large is that they’re having to pay more wages to keep their employees and to attract employees.”
This story is developing. Check back for updates.
Earlier this week, (Oct. 18) Fed President Raphael Bostic said central bank needs to get inflation under control to assure long-term growth.
