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

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.