The president of the Federal Reserve Bank of Minneapolis President said that he’s optimistic about the U.S. economy and that he expects continued growth.
“My outlook for the U.S. economy is one of pretty good growth going forward,” Neel Kashkari said during a virtual event. “I think inflation is heading down…The question is, is it going to be two and a half percent by the end of the year, something short of that, or something above that? I don’t know.”
Kashkari said that while inflation continues to be “too high,” it is moving in the right direction and he emphasized that the Fed remains committed to its 2% inflation target and does not expect inflation to surge again.
Easing Inflation in Housing-Related Sector
Kashkari appeared to be most confident about easing inflation in housing-related sectors.
He described the overall economy as “quite resilient,” and said it “has not slowed as much as expected.” Kashkari also characterized the current economic situation as “K-shaped,” which suggest uneven recovery across different segments of the economy.
On monetary policy, he questioned how tight current policy actually is and said he doesn’t see a need for quantitative easing. Kashkari said that the current Fed balance sheet expansion should not be considered quantitative easing.
On the subject of tariffs, Kashkari noted less pass-through to consumer prices than anticipated, although he said “another price bump related to tariffs could happen.”
Kashkari the long-term impact of tariffs is still unfolding.
Households Have ‘Pretty Good Balance Sheet’
He said that households currently have “pretty good balance sheets” and he hasn’t observed anything “very alarming” in consumer borrowing patterns. Kashkari said that inflation is the main driver of financial distress so far.
Kashkari said in the interview earlier this month that the key calculus now is whether the Fed should be more focused on a slowing labor market or stubbornly high inflation.
“My guess is we’re pretty close to neutral right now,” Kashkari said in a “Squawk Box” interview. “We just need to get more data to see which is the bigger force. Is it inflation or is it the labor market? And then we can move from a neutral stance, whatever direction is necessary.”
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