Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, understands that consumers are still struggling to deal with high prices. And he has the frozen lasagna to prove it.
Kashkari told CNN’s Poppy Harlow Tuesday that he knows first hand how expensive many consumer goods and services are.
The central banker took over the grocery shopping duties for his family at the start of the pandemic, he said, and has continued doing so since then, he told “CNN This Morning.” His hometown paper, the Star Tribune, recently followed Kashkari around on one of his supermarket trips.
“I pay attention to grocery prices. There is this large tray of lasagna that I used to buy that used to cost around $16. Now it’s around $21. That’s my own little measuring stick of how inflation is going,” he said.
Job market strength fueling more inflation
Kashkari acknowledged that inflation pressures are easing, but said the Fed is still not comfortable with how high prices are, particularly for services. He noted how many parts of the economy have come roaring back, which adds to inflation. He pointed out, for example, that his flight from Minneapolis to New York was completely full.
Continued strong wage growth is fueling inflation as well, Kashkari said.
These are some of the reasons why he thinks the Fed needs to keep raising rates, or stay higher for longer, to ensure that it can push prices down.
“We have more work to do,” Kashkari told Harlow, adding that the labor market is “too hot” and that is a key reason why it is “harder to bring inflation back down.”
Kashkari has a vote this year on the Federal Open Market Committee, the Fed’s interest-rate setting group. He voted along with his peers last week to raise the central bank’s benchmark interest rate by a quarter-point to a range of 4.5% to 4.75%.
Although many investors are starting to think the Fed may pause after just two more similarly small hikes, to a level of around 5%, Kashkari said he believes the Fed may have to raise rates further.
He told Harlow he’s penciling in short-term rates as high as 5.4% before pausing. That makes Kashkari one of the more hawkish members of the Fed, meaning that he’s an advocate for higher rates.
Kashkari had previously been viewed as a dove, though, arguing during the height of the pandemic for more stimulus to help consumers and small businesses.
The case for the soft landing
The good news is that Kashkari, like a growing number of financial experts, is starting to think that the US economy could avoid a recession and instead have a so-called soft landing, or a gradual cooling off.
It’s hard to have a recession when the job market is still so robust, he told Harlow. The unemployment rate just hit a half-century low of 3.4% and the economy added 517,000 jobs last month. Treasury Secretary Janet Yellen made a similar argument recently.
However, the stronger-than-expected labor market presents more of a challenge for the Fed to get inflation back to more normal historical levels, Kashkari said. So it may be difficult for the Fed to pull off a soft landing if it has to keep raising rates.
Kashkari, a former Treasury official who oversaw the Troubled Assets Relief Program (TARP), the federal bank bailout following the 2008 collapse of Lehman Brothers and subsequent financial crisis, also hopes the government doesn’t make matters worse by failing to come to an agreement to reach the debt ceiling before a default.
A default would be a “catastrophe,” and a crisis needs to be averted, he said.
“Congress decides how much they want the executive branch to spend, so it’s a little bit unusual that they would tell them to go spend this money and then not give them the tools,” he said. “But that, ultimately, is for the elected leaders to reach an agreement.”