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Fed's Kashkari: Supply, demand shocks expected to be temporary

Minneapolis Federal Reserve Bank President Neel Kashkari is speaking at an Eau Claire Area Chamber of Commerce event and has said he believes the forces that are currently keeping people out of the labour market and pushing up prices will prove to be temporary.

He said the pressures will fade as COVID-19 turns from being pandemic to being endemic.

"We are getting mixed signals out of the economy," Kashkari said

"I'm optimistic, in the next three, six, nine months we will get a lot more information," and clarity about the outlook for both inflation and the labour market, he said.

Key comments

The next 3, 6, 9 months will be very important in getting more clarity on the economic outlook.

Right now there's a lot of uncertainty.

Whether it's a demand shock or a supply shock, either way, the story should be temporary.

Should reach equilibrium in the next few quarters.

The future outlook for inflation depends in part on what will happen with the labour supply.

Fed's Kashkari says he is ‘keeping an open mind’ on the monetary policy stance and has said that once the taper ends, the Fed would consider appropriate timing for rate hikes.

Market implications

Forex markets are waiting for the US Consumer Price Index and hence the US dollar is consolidating, rather than reacting to each comment from central bankers on Tuesday. 

The US dollar has been moving in a tight range between 93.90 and 94.10 since data earlier the day showed that US Producer Prices had increased solidly in October.

Traders noted that while high inflation could persist for a while amid tight supply chains related to the pandemic,  tomorrow's key event in CPI will be more key in this regard.

US dollar hourly chart

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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