We have a big election year coming, but we may also have a new Federal Reserve chairman coming in 2026. We heard two auditions last week, one from Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, and then Austen Goolsbee, president of the Chicago Fed. The Fed dispatched both Mr. Kashkari and Mr. Goolsbee on a public relations media tour to promote their policies, since Fed Chair Jerome Powell is, frankly, not a very inspiring spokesman for the Fed’s current “higher and longer” rate policy. And I have a little more to say about those two new Federal Reserve spokesmen.
Minneapolis President Neel Kashkari was interviewed by The Wall Street Journal and appeared on Fox News and Bloomberg TV last week. Mr. Kashkari has great credentials: 1) he ran the Troubled Asset Relief Program (TARP) under former Treasury Secretary Hank Paulsen, then 2) moved to Truckee, California, to write a book, then 3) futilely ran for California governor on the Republican ticket, and, subsequently, 4) became Minneapolis Fed President. I like Mr. Kashkari and am pleased that the Fed has such a positive spokesman.
In his several talks, NMr. Kashkari made it crystal clear that the policy-making Federal Open Market Committee wants to get inflation down to 2 percent, and he is encouraged that the core Personal Consumption Expenditures index has been running at an annual pace of just 2.5 percent in the past three months. Of all the available candidates I can think of now, I think Neel Kashkari would make a great Fed chairman when Jerome Powell retires.
The other new Fed regional bank president that is out and about on the Fed’s public relations tour is Chicago’s Austan Goolsbee. As the former head of President Barack Obama’s Council of Economic Advisors, he is a very polished communicator. In his Wall Street Journal interview on Wednesday, Mr. Goolsbee said, “The historical evidence suggests that long rates, even more than short rates, have a very substantial effect on real economic performance in a number of predictable areas … construction, investment, consumer durables.” Goolsbee added, “If that is sustained, the Fed will have to think about the tightening impact of those credit conditions on economic performance and would there be dangers of overshooting.”
If a Democrat wins in 2024, Mr. Goolsbee would be a likely choice in 2026, or Mr. Kashkari for a Republican winner. Overall, I like both new Fed spokespersons, Messrs. Goolsbee and Kashkari, since they have made it clear that the Fed does not want to overshoot by raising rates too high, thereby hindering economic growth. Their dovish message likely helped rescue last week’s Treasury refinancing auction, when there was a ransomware attack on the Industrial and Commercial Bank of China (ICBC), which may have disrupted its Treasury market bids, according to the Financial Times. As a result, the 30-year Treasury bond auction on Thursday did not go very well. Yields rose, but it seems that the ICBC ransomware attack disrupted buying from China, since some Treasury trades had to be rerouted.
Despite the positive views from Mr. Kashkari and Mr. Goolsbee, Fed Chairman Jerome Powell reiterated last Thursday that the Fed would not hesitate to raise key interest rates in December, which was another reason Treasury yields rose late last week. However, the Fed chairman’s comments were just his normally dour attempt to talk the market down, as I do not anticipate any further Fed rate increases, particularly since I am expecting positive inflation news this week with the Producer Price Index and Consumer Price Index releases.
