In a CNBC interview, Minneapolis Fed President Neel Kashkari pushed back against reading Wednesday’s softer PCE report as a meaningful shift in the inflation outlook, saying “inflation is still too high.” Core PCE inflation came in at 3.0% y/y, below expectations, but Kashkari stressed that inflation has remained around 3% and above the Fed’s target for more than five years. He said the latest data “didn’t really change that story” for him, keeping the focus on the persistence of inflation rather than the downside surprise in a single release.
Kashkari also argued that the broader economy remains resilient enough for the Fed to continue prioritizing price stability. He described the labor market as “pretty good” rather than great, while pointing to consumer spending and GDP as evidence that activity remains firm. He continues to expect another rate increase depending on how the economy evolves, while cautioning that the September FOMC projections were only a snapshot based on information available at the time. That leaves him broadly aligned with the prospect of further tightening, even as New York Fed President John Williams has emphasized that there is no urgency to move again immediately.
Kashkari also highlighted the message coming from financial markets, saying policymakers should not dismiss signs that “policy may have to go even tighter than we expect.” He has raised his estimate of the neutral funds rate to 3.25%, partly because the AI investment boom is generating unusually strong demand for capital. But he warned that the productivity payoff has yet to be proven and that disappointing returns on the investment surge could eventually carry broader economic consequences. The overall message is therefore hawkish on inflation and the likely direction of policy, while leaving the timing of the next move dependent on incoming data.
Key Takeaways
- Kashkari said softer PCE did not materially change his inflation assessment, stressing that “inflation is still too high” and has remained elevated for more than five years.
- He characterized the US economy as “resilient” and the labor market as “pretty good”, giving the Fed room to keep focusing on price stability.
- Kashkari still sees scope for another rate increase, depending on how the economy evolves, while stressing that the September FOMC projections were only a snapshot rather than a commitment.
- His message differs in emphasis from New York Fed President John Williams’ “no urgency” stance: Williams focused more on timing, while Kashkari emphasized that the underlying inflation problem remains unresolved.
- Kashkari said markets may be signaling that “policy may have to go even tighter than we expect,” though he cautioned against blindly following market pricing.
- He has raised his estimate of the neutral funds rate to 3.25%, partly because the AI investment boom is creating unusually strong demand for capital.
- Kashkari also warned that the productivity payoff from AI investment has yet to materialize, saying “the fruits have not yet borne out.”
- Overall, his stance remains hawkish on inflation and the likely direction of policy, but conditional on incoming data rather than tied to an immediate next hike.
