Fed’s Kashkari: Can’t allow inflation expectations to get unanchored

Pablo Piovano FXStreet

Minneapolis Federal Reserve (Fed) President Neel Kashkari warned that United States (US) tariffs act as a drag on economic growth and emphasised the central bank’s responsibility to prevent those trade measures from fuelling longer-term inflation.

Key Quotes

Independent monetary policy leads to better economic outcomes, is foundational.
Notes that his own change from dove to hawk to current moderate came from analysis of data.
Fed policymakers are making best call they can, based on data. That's what independence means.
Tariffs are somewhat inflationary.
Tariffs also slow growth.
Fed's one tool is in tension.
Too soon to judge path of interest rates.
Logical that tariff leads to one-time increase in prices, but backdrop of high inflation runs risk of unanchoring inflation expectations.
Can't allow inflation expectations to get unanchored.
So far long-run inflation expectations have not moved much. Fed's job to make sure they don't.
Fed's job is to make sure tariffs don't lead to longer-term inflation.
To no longer have a trade deficit, investors would have to conclude US is no longer best place to invest.
Still early to tell if that's happening.
Bond yield up and dollar down indicates some reassessment of where global investors want to invest.
All of this can change quickly, with resolution of trade uncertainty.
Haven't seen this level of anxiety since COVID hit.
Interest rate level in US is largely influenced by capital flows.

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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