Fed's Kashkari: Headline inflation possibly peaked, but core figure is the bigger concern

Oct. 19, 2022 1:46 PM ETBy: Max Gottlich, SA News Editor2 Comments

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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 virtual Travelers Institute event.

Indeed, headline CPI has been easing since the 9.1% peak in June, but core inflation in September jumped to 6.6%, the highest level since 1982, 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 must return inflation back to its 2% objective, he added.

Kashkari, who was known as the one of the most outspoken doves at the Fed before the pandemic hit the world, said 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 to fight inflation.

He doesn't think the U.S. economy pushed into a recession in the first half of 2022 amid a tight labor market, including high job openings, albeit cooling recently, and low unemployment. Meanwhile, some are calling for a technical recession taking effect after two negative quarters of real GDP.

"I've seen very little evidence in my region that the labor market is softening," he 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."

Earlier this week, (Oct. 18) Fed President Raphael Bostic said central bank needs to get inflation under control to assure long-term growth.

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