Minneapolis Fed chief Neel Kashkari says policy makers “need not exaggerate” the short-term jump in inflation

FILE PHOTO: Federal Reserve Bank of Minneapolis Neel Kashkari Speaks in an Interview in New York, USA, March 29, 2019. REUTERS / Shannon Stapleton
Neel Kashkari has been the Minneapolis Fed President since 2015.

  • The Federal Reserve should not react too quickly to inflationary pressures that will ease, Minneapolis Fed Chief Neel Kashkari said.
  • The Fed “does not need to overreact” to high inflation, even though “the pain is real” for Americans, he said.
  • Kashkari is worried about long-term damage to the economy if the Fed exceeds its response to inflation.

Consumers will deal with high inflation during part of 2022, but the Federal Reserve, however, should not react too quickly to conditions that will soon fade, Minneapolis Federal Reserve President Neel Kashkari said Sunday.

“The math suggests we’ll probably see somewhat higher measurements over the next few months before they probably start to wane,” he told CBS ‘”Face The Nation” program.

An increase in demand from consumers who have received government stimulus money along with widespread supply chain disruptions is driving up prices, he said.

“But my view is that we should not overreact to any of these temporary factors either, even if the pain is real. You know, the Federal Reserve, when we adjust monetary policy, it acts with a delay. And so if we overreact to a short-term price increase , which can put the economy back on track in the long run, “he said.

Government data released last week showed that US consumer price inflation rose to 6.2% in October from a year ago, the highest rate since 1990. The rise was followed by rising energy prices, with fuel prices rising 12.3% through the month. CBS noted to Kashkari that he has said he does not expect inflation to return to a 2% rate before 2024.

The Fed has “taken the appropriate steps” earlier this month to reduce the amount of asset purchases it makes monthly, with the downsizing process lasting about six months, he said.

“It’s the first step in reducing the monetary policy boost that we are giving the economy,” he said. “And over the next three, six, nine months, I think we’re going to get a lot more data on both the demand side and the supply side to get a better reading of where the economy is headed.”

The Fed since last year has bought at least $ 80 billion in government bonds and $ 40 billion in mortgage-backed securities each month to help the economy through the pandemic. This month, Treasury purchases will fall by $ 10 billion a month and by $ 5 billion for MBS.

Investors have already begun to price expectations for the Federal Reserve to start raising its benchmark rates from the zero range in 2022.

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