Fed Kashkari: More work to do to bring services back into balance

Minneapolis Fed President Neel Kashkari expressed concerns over the current state of the service economy and its potential impact on inflation. “The one area that is particularly concerning right now is that the services economy, outside of housing, has not shown any sign of slowing down,” he said yesterday.

Kashkari emphasized the need for further action, stating, “Wage growth is still growing faster than what is consistent with our 2% inflation target; that tells me we still have more work to do to bring the services side of the economy back into balance… we know we have to get inflation down, and we will.”

He also addressed the ongoing banking stresses, drawing a comparison to the 2008 financial crisis. While he doesn’t expect a repeat of that situation, he cautioned that banking panics tend to take longer to resolve than expected: “Every time in 2008, we thought we were through it, there was another shoe yet to drop. So I am prepared to think this could take a little longer than we expect until we fully get behind it.”

Although the US banking system is sound and most banks are prepared for higher rates, Kashkari raised concerns about the potential for a sustained credit crunch, which could slow down the economy. “What’s unclear right now is how much the banking stresses of the past few weeks are leading to a sustained credit crunch,” he said.