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U.S. consumers are so fed up with rising prices they would rather see the economy shrink than watch their costs get any higher, according to Neel Kashkari, president of the Federal Reserve Bank of Minneapolis.<\/p>\n
As a result Kashkari, who has led the organization since January 2016, had some bad news for Wall Street: he doesn\u2019t believe a cut is coming any time soon<\/a>. <\/p>\n Financiers have been waiting for Jerome Powell to confirm when rates will begin to fall from a more than two-decade high. <\/p>\n Many previously believed that the process would have already begun by this point in the year, but analysts began revising their expectations when CPI data continued to come back sticky.<\/a><\/p>\n Indeed, inflation stubbornly stayed at 3.4% in April\u2014exactly the same as it was back in December. <\/p>\n The figure is an improvement when viewed with a longer-term lens; however, when it peaked at 9.1% in June 2022, it still stayed well above the Fed\u2019s 2% target.<\/p>\n While analysts who had hoped to work a cut into their forecasts may be disappointed<\/a>, Kashkari insists a continued grip on monetary policy is what consumers want to see. <\/p>\n \u201cI have learned that the American people\u2014and maybe people in Europe equally\u2014really hate high inflation. I mean, really viscerally hate high inflation,\u201d he told the Financial Times\u2019s \u2018The Economics Show<\/em>\u2018<\/a> podcast. <\/p>\n Kashkari said that those on the lower end of the income spectrum would rather have a recession than continued inflation, acknowledging that this is the opposite of what many economists would prefer.<\/p>\n He explained that this preference among labor unions is because workers have learned to deal with recessions before and can rely on friends and family for support. <\/p>\n Kashkari illustrated: \u201cI lose my job, I lean on my sister or my parents or my friends, and they help me through it. But high inflation affects everybody.<\/a> There\u2019s no one I can lean on for help because everyone in my network is experiencing the same thing I\u2019m experiencing.\u201d<\/p>\n Kashkari, a former aerospace engineer, is more hawkish about how the Fed should continue to handle the base rate in the future.<\/p>\n While Kashkari does not have a vote on the base rate this year, the 12 members of the committee will consider his thoughts\u2014and he\u2019s made it clear he believes the U.S. economy is still relatively healthy.<\/p>\n \u201cIn the US, GDP has been remarkably strong, very strong,\u201d he explained. \u201cThe labour market has been resilient. Wage growth has been mostly resilient. And we\u2019re seeing even the housing market has shown signs of resilience. So if I look at this resilience and economic activity, that does not look like an economy that is under pressure of very high, very tight monetary policy.\u201d<\/p>\n Currently, the base rate sits at approximately 5.5%\u2014whereas prior to the pandemic, it sat at just 0.25%. <\/p>\n Kashkari predicts that the future of the base rate lies somewhere in the middle, maybe around the 2.5% mark.<\/p>\n But he qualified: \u201cThat\u2019s very uncertain. That\u2019s gonna depend on what happens to productivity growth, among other things. And for example, like what impact AI ends up having on the economy?\u201d<\/p>\n Indeed, the former Goldman Sachs<\/a> staffer echoed a fear JPMorgan\u2019s Jamie Dimon is voicing<\/a> that few will want to listen to: that the Fed could even hike rates. <\/p>\n \u201cWhen we look at risk and rates we don\u2019t always look guessing what the future is, [we are] kind of looking at a range of outcomes,\u201d Dimon\u00a0told CNBC<\/a>\u00a0during the J.P. Morgan Global China Summit in Shanghai last month. <\/p>\n \u201cDo I think that rates can go up a little bit? Yes I do. And if they do is the world prepared for it? Not really.\u201d<\/p>\n Kashkari said he believes the base rate will stay where it is for an extended period of time,<\/a> or \u201cuntil we get convinced that inflation is either well on its way going back down or it\u2019s not.\u201d <\/p>\n If the Fed remains unconvinced, he warned rates may even go up.<\/p>\n One thing\u2019s for certain: Kashkari\u2014who formerly held senior positions at the U.S. Department of the Treasury\u2014will not endorse the Fed raising its inflation target from 2% to 3% and calling it a day. <\/p>\n He explained: \u201cI think that\u2019s a terrible idea because the next time we have a high inflation period, you might say, well last time they settled at three, maybe this time they\u2019ll settle at four and you\u2019ll see a gradual unanchoring of inflation expectations.\u201d<\/p>\n<\/div>\n\u2018Remarkably\u2019 resilient<\/h2>\n
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