Minneapolis Federal Reserve President Neel Kashkari said Thursday that reducing inflation remains his top priority for the U.S. central bank.
Kashkari made the remarks while speaking to CNBC’s Kaori Enjoji at the Bank of Japan-IMES Conference, where he outlined the Fed’s current policy thinking.
He said the Fed would continue taking a “balanced approach” to its dual mandate covering both price stability and full employment across the economy.
Kashkari pointed out that inflation has remained above the Federal Reserve’s 2% target for more than five years, a prolonged overshoot that concerns him greatly.
“I am focusing heavily on inflation. I’m not ignoring at all the labor market. We need to pay attention to both sides, but the labor market is in decent shape right now, while inflation is simply much too high,” he said.
Kashkari warned that allowing inflation to stay elevated for too long risks unanchoring consumer expectations, which would then force the central bank into sharper action.
“If that were to happen, then we’d have to respond even more aggressively, so we’re much better off doing what we need to do to keep inflation expectations anchored,” he added.
U.S. headline inflation most recently stood at 3.8% in April, while core CPI, excluding food and energy, increased 0.4% and 2.8% respectively.
Kashkari attributed current inflationary pressures to several global forces, including the Covid-19 pandemic, tariffs, the war in Ukraine, and the conflict in Iran.
On the specific drivers of the recent surge, Kashkari pointed to energy and fertilizer prices as central factors pushing broader consumer costs higher.
“Those inputs do affect other categories as well, and so one of the things I’m going to be looking for is, when do we see energy prices affecting the broader economy and inflation in the broader economy,” he said.
When asked about artificial intelligence and its effect on Fed policy, Kashkari said sustained AI-driven productivity gains could support higher interest rates over time.
“I’m bullish on the long-term prospects of AI, but what are the short-term implications for monetary policy, or even the long-term implications? I think it’s still too soon to know,” Kashkari said.
The comments arrive as the Federal Reserve enters a new chapter under Chair Kevin Warsh, who succeeded Jerome Powell at the helm of the central bank.
Warsh has long criticized the Fed’s use of forward guidance tools, including the so-called “dot plot,” which displays anonymous interest-rate projections from the central bank’s 19 policymakers.
Kashkari, who said he has known Warsh “for a long time,” welcomed a fresh conversation about how the Fed communicates its intentions to markets and the broader public.
He said personally, “I don’t love the fact that I have to fill out the dot plot, because the future is so uncertain,” signaling openness to changing the current communication framework.
Suggested alternatives include presenting multiple economic scenarios or only publishing the dot plot when policymakers are “really trying” to deliver clear guidance to markets.
“Forward guidance can be a very powerful tool for central bankers. There are few moments when I really want to deliver that guidance,” Kashkari said, urging a broader reconsideration of current practices.