Fed’s Kashkari Expects Inflation to Stay Hot Over Next Few Months

Minneapolis Federal Reserve Bank President Neel Kashkari in his office at the bank's headquarters in Minneapolis, Minn., on Jan. 10, 2020. Ann Saphir/Reuters

Minneapolis Federal Reserve Bank President Neel Kashkari, one of the central bank’s most dovish policymakers, said Sunday that he expects inflation to stay elevated—and possibly even accelerate—over the next several months before starting to trend down.

Kashkari, who in September was the Fed’s only policymaker to call for leaving rates at their current near-zero level until 2024, told CBS News’ “Face the Nation” in an interview that “the math suggests we’re probably going to see somewhat higher readings over the next few months before they likely start to taper off.”

Fiscal stimulus passed by Congress led to a “surge of demand,” he said, while pandemic-related factors disrupted supply chains, with the two factors combining to drive up prices.

“The good news is both of those should be temporary,” Kashkari said, reiterating the oft-repeated view by Fed policymakers and Biden administration officials that the current bout of inflation—running at a 31-year high—won’t last.

“The challenge is these high prices that families are paying, those are real, and people are experiencing that pain right now,” he said. “We take that very seriously, but I’m optimistic that it should be temporary, even though it is causing pain right now.”

The Labor Department’s most recent consumer price index (CPI) data, which reflects rising prices from the perspective of end consumers, shows that inflation rose 6.2 percent in the 12 months through October, the highest reading since 1990. At the same time, the over-the-month rate of consumer price inflation came in at 0.9 percent, more than twice the pace in September.

The price data release followed a separate government report a day earlier showing that producer prices rose in the 12 months through October at 8.6 percent, matching the September rate, which was the highest since 2008. The producer price inflation data added to concern about consumer price inflation, since higher production costs tend to trickle down to consumers.

Rising prices have also driven up consumer expectations for what inflation will be further down the road. The New York Fed’s most recent consumer inflation expectations survey showed that short-term (one year ahead) inflation expectations rose in October to 5.7 percent, the highest reading in the history of the series. The medium-term (three years ahead) inflation expectations remained unchanged from the prior month’s level of 4.2 percent, which was a record high.

Kashkari said in the interview that, in his view, the Fed should not “overreact to some of these temporary factors, even though the pain is real.”

“It’s important from the Fed’s perspective that we don’t set long-term monetary policy and ... adjust too much based on temporary factors, even if those temporary factors take a little bit longer than we expect,” he said.

Since monetary policy acts with a lag, “if we overreact to a short-term price increase that can set the economy back over the long-term,” he said.

Kashkari said he expects more clarity on the economic outlook when the Fed concludes its bond-buying program in mid-2022, adding that getting the pandemic “really under control” will give people confidence to go back to work and help the labor participation rate—which has been stuck at a historically depressed level—rebound.

“That will help the economic recovery and that will certainly help bring down inflation,” he said.

The Labor Department’s most recent jobs report, released Nov. 5, showed the labor force participation rate in October stood at 61.6 percent, unchanged from September but well below the pre-pandemic level of 63.6 percent in February 2020, and far off the historical peak of 67.3 percent in April 2000.